Global Sourcing

1
Global Sourcing
I find it useful to consider sourcing as really
being part of the same pipeline as marketing
the output
Transformation
Inputs
Outputs
Process
So even though we are now considering Inputs,
we still keep a marketing focus Sourcing,
like marketing, is concerned with the interface
between the Organization and its environment
2
Focus on Logistical management of
RD/manufacturing/marketing interface
Product Life Cycle applies internationally
Maturity
Growth
Decline
Intro
Optimum location may shift with change in the
stage of the product life cycle
3
Source of ideas - RD Source of product -
manufacturing Source of market - Marketing Must
see them ALL working together to succeed
RD
Marketing
Manufacturing
Advantage of globalization - locate each activity
where it makes the most sense
4
TVs and Catscans are both examples of products
which are technically inferior but which were
successfully manufactured and marketed CAT
invented by Emi (UK) but developed by GE
(USA) TVs - British held the original patents,
but the Japanese designed around the circuits -
more complex, but built it cheaper.
5

• Limitations on international product life cycle
  theory
• 1. Faster product development, shorter
  innovation lead times reduces
• the advantage of polycentric approach
• Predicting development of new/better sources
  during PLC gives
• shrewder companies an advantage.
• Actively managing resource deployment on a global
  basis can give
• company pre-emptive first-mover advantage.

6

• Inherent conflict
• Marketing dominatedProduct modification to meet
  market
• differences at the expense of manufacturing
  efficiency
• 2. Production dominatedExcessive product
  standardization to meet
• production efficiency at the expense of
  satisfying market
• differentiation
• 3. RD dominated Over designed - too complex,
  too expensive, too
• much delay in time to market

7
Trends in Sourcing Strategy 1. Decline in
importance of X/C rate (i.e. not just price) 2.
Effects of Excess Capacity - particularly in
capital intensive old economy industries e.g.
Steel, autos, newsprint, chemicals 3. Changes in
International Trade Infrastructure (a) Growing
management skill and expertise e.g Row between
GM VW over new VP Purchasing (b) Transportation
- - Intermodal - containerization - scheduled
liner services - air freight - costs have come
down enormously - e.g. cheaper for me to air
freight personal effects Bahrain- Winnipeg than
send by sea/rail. - forwarders/
consolidators/brokers e.g. DHL, UPS, TNT Skypack,
etc. now providing global coverage
8
(c) Communication - fax, email, shipment
tracing (d) New financing options - like
countertrade. But old fashioned system of L/Cs
still dominates . Perhaps, however, some shift to
open 30-60-90 day lines of credit, as in
domestic trade. (e) Multiplicity of sources, and
shifts in source location - raw materials -
grain, coal, iron ore, alumina, crude oil -
components - I/cs, chips, auto components -
assembled goods - OEMs, contract manufacture -
regional aircraft - not US, Holland or UK but
Canada and Brazil 4. Enhanced role of purchasing
manager - role of purchasing and logistics
starting to come out of the shadows 5. Trend
to Global Manufacturing Old style - manufacture
at home, export everywhere New style -
manufacture everywhere, sell everywhere - Two
trends - (a) setup complete assembly factories in
foreign markets (b) setup factories to
build key components in particular place and
supply all factories from there, e.g. Ford engine
plants.
9
Potential Pitfalls of Global Sourcing Unresolved
tension in global manufacturing Standardization
Local Market Differentiation
Financial Pressure
Political pressure - nationalism
Modern globalization - willingness to face this
dilemma and get a balanced answer - Partly
being forced by competition - many
multi-nationals out there as well as local firms
- if we dont, someone else will
10
Note criticism of US companies over last several
decades- management thinking dominated by
marketing and finance/accounting -
inadequate consideration of production
factors. - Criticism also applies equally to a
lot of UK and European companies as
well Offsetting this, however, we must
acknowledge the tremendous gains in productivity
in the US economy during the 1990s - and you
cant do that by ignoring manufacturing! Another
factor which arises repeatedly in international
case studies, is the tendency for parent
companies, particularly American ones, to force
home office systems and procedures on
subsidiaries, whether they fit or not -
planning - budgeting - reporting (including
converting accounts to US) - decision making -
organization structure - patterns of HR - etc.
11
Concept of the Value Chain Sequence of all
activities from product design, resource
acquisition through inbound logistics, manufact
uring and assembly, promotion, sales,
distribution, and after-sales service which adds
value to the final product in the hands of the
customer Together with support activities such
as - human resource mgt, - technology
development - accounting/IT
12
Elements of the Value Chain
Planning, Finance, MIS , Legal
Technology, R D, Design
Product design
Distribution Channels Warehouse Delivery
Customer Service, Mtce Repair
Marketing, Sales Advertising
Purchasing, Raw Matl Handling
Produc- tion
Human Resource Management
13
Steps in value chain analysis 1. Identify the
separable links in the companys value chain 2.
For each link, do we have any competitive
advantage - either scale or scope? 3. What are
the transaction costs between links? -
negotiation - monitoring - uncertainty/risk -
economic? political? 4. Determine the
comparative advantage of countries/locations
relative to - each link of the value chain -
associated transaction costs 5. Build in
sufficient flexibility to cope with changes in -
competitive advantage of the company -
comparative advantage of the country
14
Managing RD - Manufacturing Interface -Focus on
both Process technology and Product
technology Product technology examples - EMI /
GE CAT scan - TVs - Xerox -
Polaroid - Process technology - Canon over
Xerox - photocopier - Boeing over BAe - jet
aircraft - Pfizer and penicillin - Rolls
Royce still competitive in jet engines- Note
too that Production can influence RD by defining
problems areas or issues that need improvement
or a new solsution
15
Ways of Managing Production / Marketing
Interface 1. Standardize core components e.g.
auto engines, transmissions computer
memory chips, hard drives 2. Group products into
product design families to gain some economies of
scale e.g. auto industry base models
(platforms) 3. Universal product with all
features - either all standard or as selectable
options e.g. Canon cameras 4. Universal product
but different positioning, i.e target different
market segments in different countries Tradeoffs
Standardization Diversification Long
prodn runs Produce to order Cost Quality
16
Marketing - RD Interface Problem is trying to
maximize satisfaction of consumers needs and
wants While at the same time trying to maximize
what is technically possible. Management
problem Deciding when to freeze development
and go into production One possible answer
continuous product development - staged
improvements to basic product. Problem -
overtaken by a blockbuster novelty (fashion
trade particularly vulnerable) - lose out to
fundamental shift in character of product, so
that our standard product suddenly finds itself
obsolete. Fundamental issue monitoring
trends keeping response time and development
times short
17
Logistics of Sourcing Intra-firm vs.
Outsourcing
We focus on core competencies But - lose contact
with technology design manufacturing skills
Vertical integration But - Higher mgt
complexity - Slow response time
Which way to go ? One solution strategic
alliances -separate as in outsourcing - blended
as in integrated Problem Whos in charge??
Dominant partner? Equal partners ?
(but some of us are more equal than others!)