GLOBAL DIMENSIONS OF SUPPLY CHAINS

1. GLOBAL DIMENSIONS OF SUPPLY CHAINS

2. Learning Objectives • Describe the complexity of a company’s global supply chain network and understand what questions need to be addressed for the supply chain to be competitive. • Understand the three major phases of globalization and understand the underlying economic and political forces driving each phase.

3. Learning Objectives, continued • Appreciate the complexity and magnitude of the operations of successful global companies and why global expansion is important to their growth and financial viability. • Explain how technology and service specialists can help companies, especially small- to medium-size firms, penetrate the global marketplace and contribute to their competitive success.

4. Learning Objectives, continued • Appreciate the importance and contributions of the trading partner countries of the United States and how they support our global prosperity. • Understand the complexity of global markets and how competitive strategy can help mitigate complexity.

5. Learning Objectives, continued • Explain the need for global security measures and the flexibility necessary to ensure that such security measures do not impede trade but rather enhance the flow of goods and services. • Discuss global transportation options and strategic intermediaries and their role in global in supply chains.

6. Introduction • Three eras of globalization • (1400–1800) • initially driven by countries seeking materials and goods not available in their own land. • (1800–2000) • driven by companies seeking goods and materials, labor, economies of scale, and markets. • 2000- date • the significant characteristic is that it is being powered by individuals and smaller organizations

7. Supply Chains in a Global Economy • Economies and companies could improve their “wealth” by allowing specialization of tasks. • The advantage is true as long as you can sell the increased volume that is produced. It is an important role of logistics to help extend the market area of countries or companies through improved efficiency to lower the “landed cost” in new market areas.

8. The Scope and Magnitude of Global Business • The ability to connect to individuals and companies across the globe and to connect computer information systems on a 24/7 basis has provided unparalleled opportunity for collaboration horizontally and vertically in supply chains. • The trade volume with China was 18.2 percent of the total of the top 10 for 2006, and it increased its trade volume by 20 percent from 2005 to 2006. In 2000, China was number 4 following Canada, Mexico, and Japan.

9. Table 3.1Top U.S. Trading Partners Source: TradestatsTM Express, International Trade Administration, U.S. Department of Commerce, 2011

10. Global Markets and Strategy • The global business environment has changed significantly and become much more conducive to business activity between and among different countries. • Success in the global market place requires developing a cohesive strategy, including product development, technology, marketing, manufacturing, and supply chains.

11. Global Markets and Strategy, continued • Global markets and strategy have four important characteristics: • Standardization reduces complexity • Global competition reduces the product life cycle • Traditional organizational structures and business models frequently change • Globalization introduces more volatility

12. Supply Chain Security: A Balancing Act • Given the importance of global trade to the United States, a delicate balance exists between security and the efficient flow of global commerce. • More cargo inspections, much more paperwork, and a longer time to clear U.S. borders are now a reality. • C-TPAT initiated by the Homeland Security Dept is a cooperative effort to secure the global supply chain and to facilitate legitimate cargo and conveyance.

13. Ports • Ports are a critical part of global supply chains and also a major focus for global security. • America’s ports are a vital part of its global commerce. Over $2 trillion in trade value per year passes through U.S. ports, and over $18 billion is collected in industry fees and taxes.

14. North American Free Trade Agreement • NAFTA establishes free trade between these three countries and provides the way the agreement is to be interpreted. • Even though the U.S./Canada Free Trade Agreement has been in effect for some time, certain trade barriers still remain. • The supply chain constraints will eventually be eliminated as NAFTA experience grows.

15. Figure 3.1Typical Truck Shipment Into Mexico Source: Edward J. Bardi, Ph.D. Used with permission

16. Maquiladora Operations • A U.S. Manufacturer operates or subcontracts with a facility in Mexico to manufacture, process, or assemble products to capture labor savings.

17. Asian Emergence • The most significant trend in the past 25 years is that of the rise of pacific rim countries as important players in the global economy. • Many countries are now the worlds’ preferred sources for raw material and components

18. Figure 3.2Hourly Compensation in Manufacturing Source: Bureau of Labor Statistics, Foreign Labor Statistics (2011)

19. New Directions • Locating factories and logistics facilities in countries that use or consume the products. • Focused production • A plant produces only one or two products

20. Global Transportation Options • Ocean • The most pervasive and important global shipment method, accounting for two-thirds of all international movements. Major advantages are low rates and the ability to transport a wide variety of products and shipment size. • Three major categories: • Liner service • Charter vessels • Private carriers • Air • Fast transit times • An advantage in packaging • Disadvantage of air carriage is high rates

21. Global Transportation Options, continued • Motor • standardization reduces complexity • Use motor transport when shipping goods to between the United States and Mexico or Canada • It is very common in Europe • Motor also plays a large part in intermodal shipments • Rail • International railroad use is also highly similar to domestic rail use • Intermodal container shipments by rail are increasing • Maritime bridge concepts • Land bridge

22. Global Intermediaries • Foreign Freight Forwarders • Supplies expertise to international shippers • Consolidate small shipments into more economical sizes • Derives income from fees for service • Airfreight Forwarders • Same services as surface forwarders but only for air shipments • Non-Vessel-Operating Common Carriers • They consolidates and dispenses containers at inland points • They use the shipping expertise to reduce empty containers and save costs

23. Global Intermediaries, continued • Export Management Companies • EMCs act as agents for domestic firms in the international arena • Obtain orders, selecting appropriate markets, distribution channels, and promotional campaigns • Export Trading Companies • ETC exports goods and services to overseas buyers and handles most of the export arrangement • ETC allows small- to medium-size firms to engage in foreign trade

24. Global Intermediaries, continued • Customs House Brokers • Oversee the movement of goods through customs and ensure that the documentation accompanying a shipment is complete and accurate for entry into the country • Operate under power of attorney from the shipper to pay all import duties due on the shipment • The importer is ultimately liable for any unpaid duties • Keeps abreast of the latest import regulations and specific requirements of individual products

25. Storage Facilities and Packaging • Storage Facilities • Transit sheds provide temporary storage while the goods await the next portion of the journey. • Carrier provided hold-on-dock storage free of charge until the vessel’s next departure date. • Public warehouses are available for extended storage periods. • Bonded warehouses operate under customs agency’s supervision and are used to store, repack, sort, or clean imported merchandise entered for warehousing without paying import duties while the goods are in storage.

26. Storage Facilities and Packaging, continued • Packaging • Export shipments moving by ocean transportation require more stringent packaging than domestic shipments normally do. • The shipper may find settling liability claims for damage to export goods very difficult. Usually, the freight handling involves many firms, and these firms are located in different countries.

27. Summary • Global companies are usually faced with more complex and longer supply chains which bring challenges in ensuring efficiency, effectiveness, and execution. • There have been three phases of globalization: the first was driven by countries, the second by large companies, and the third by individuals and small organizations. The political and economic environment was different during these three eras. • Successful global companies have transformed their supply chains on a continuing basis as economic and political circumstances have changed to enable them to deliver best cost and value to the ultimate customer.

28. Summary, continued • The rate of change has been driven by a set of external forces such as globalization, technology, organizational• The scope and magnitude of trade flows between the United States and other countries have grown considerably in the last several decades. One important development has been the growth in the volume of trade with China and several other Asian countries. China has become the second most important country as a global trading partner to the United States • Success in the global marketplace requires ongoing development of a cohesive set of strategies including customer service, product development, business model, and supply chain management. Supply chains have become increasingly more important during the 21st century. • Supply chain security has taken on increased importance since September 11, 2001. Companies individually, jointly, and in cooperation with the various levels of government are actively involved. The federal government, in particular, has expanded the scope of its regulations and policies for global security.

29. Summary, continued • U.S. ports play a critical role in global supply chains since over 90 percent of global trade passes through them. Ports are also an important focus for security. The US needs to focus more attention on port infrastructure. • Canada and Mexico are ranked number 1 and 3, respectively, on the list of most important trading partners with the United States. That relationship is enhanced by the North American Free Trade Agreement ratified by Congress in 1994. While the treaty had lofty goals, it still is experiencing problems with full implementation of its objectives. Nevertheless, it has fostered trade in North America. • Global supply chains have a number of transportation and related service options available to managers. Each of the options has advantages and disadvantages that need to be analyzed.