Spina Global Scm

2008 MIP - Riproduzione riservata – GianlucaSpina

Global Supply Chains

April 14, 2008

Gianluca Spina – MIP, Politecnico di [email protected]

2008 MIP – Gianluca Spina

SCM: why and what

• Extreme industry fragmentation (outsourcing and offshoring)• Internationalization and market globalization• Explosion of variety and volatility in customer requirements• New products and process technologies• Request for faster processes

• Optimizing internal processes is no longer enough, • Need to manage processes going beyond the boundaries of the

company


Scenarios

Managing global SC is more complex and risky

• Different standards and regulations• Additional costs• Higher risks (logistic, financial; currency exchange)• Diversity

1. Higher managerial skills and organizational capabilities2. Different models of global SCM (5 archetypes)3. Growing relevance of global sourcing


“Pain Points” in global SC

Fragmentation due to outsourcing and offshoring (LCC) 31%

Lack of project mgmt and resources (do more with less) 12%

Poor internal coordination among functions, depts, subsidiaries etc..

10%

Price fluctuations of commodities 10%

LCC competition 10%

Competence shortage 7%

Power shift to retailers 7%

Regulations & Security (post 9-11) 7%

Information systems integration 5%

Protection of intellectual property 2%

Survey in 10 top global manufacturers (Handfield e Steininger, 2006)Participants: over 100 SC senior executives (VPs and Directors)


Local processes and global processes

Sourcing Prod/Ass Distrib.


Local processes

Global processes

Sourcing marketsFinal markets


Configurations

5 configurations

International growth

• 2 characterized by (mainly) local sourcing

• 3 characterized by international or global

sourcing


1 – “Cloners”




• Replications of multi-country operations

• Short reach, enough scale even at a local theatre

• E.g.: cement, beverages, metalworking, etc.

• Supply Chain: low complexity, lean thinking

• Critical issue: knowledge transfer and best practice

implementation


Distrib. Sourcing Prod/Ass

• Strong global brands from strong local roots

• Competitive advantage of local sourcing and manufacturing (districts, valleys)

• Industries: – International districts (high-end textile-apparel);

– luxury goods (watch industry);

– OEM and capital equipment

– EU Automotive (top brand: Ferrari; Porsche; BMW till mid 90’s)

• Difficult to maintain as delivery and cost pressures increase (e.g Hitachi)

2 - “Barons”


Globalization strategy in theautomotive industry


Porsche and BMW: both compete globally


… but through different manufacturing and supply strategies


• Etching equipment to make semiconductors

• Global market dominated by giants (Intel, NEC, Motorola, STM

…)

• Hitachi’s production concentrated in one single Japanese plant

close to R&D; local supply base

• Spare parts logistics as a major competitive issue (increasing

in importance)

• New central customer care in Texas

• Stock of parts and subsystems and quick assembly on

demand of spare sub-systems

Hitachi High-Technologies


Challenges and responses

• Increasing pressure on global services from 8 days to 4 hrs

• 60-180 days lead time of Japanese suppliers

• Crisis of the “baron model” for such a sophisticated equipment because of the

service operations

• Opportunities of global scouting from Texas CCC: new potential suppliers in

US and Europe

• Resistance to unravel consolidated relationships with first-tier Japanese

supplier

• HQ allowed to switch to new suppliers only when alternative compensative

businesses were found for the Japanese suppliers

Hitachi High-Technologies


3 – “Shoppers”

Prod/Ass Distrib.

Sourcing

Prod/Ass Distrib.

Prod/Ass Distrib.

• Shopping around the world, downstream operations at the local

theatre

• Global commodity markets or global concentration of part

suppliers

• E.g.: papermills, sugar, transplants, high–end fashion, EMS

(Electronic Manufacturing Service)

• Supply Chain: Complex inbound


Dell Supply Chain

Global suppliers

Logistic centres

End customer

s

Dell plants

Local suppliers

Supplier-controlled

3PL

Dell-controlled

Suppliers of peripherals


4 – Outreachers

• Global brands, huge R&D investments paid back on a global scale

only

• International markets for sophisticated technologies and parts

• E.g.: Aerospace, Supercomputing, Semiconductors, Integrated

textile-apparel chains (Zara, etc..)

• Sometimes evolution of the “barons”

Sourcing Distrib. Prod/Ass


5 - Full players

• Large scale producers, global branding, large scale

suppliers

• E.G.: Consumer electronics, Chemical, Food

(partially), Pharma (partially)

• Complex SCM, cross-country flows

Sourcing Distrib. Prod/Ass


International vs. Global Sourcing

Purchasing locally(2 types)

Purchasing abroad(3 types)

International or Global?

• Sourcing abroad in LCC does not equal global

sourcing

• Global sourcing entails structures, processes and

technologies deployed on a global basis

• Trade off benefits and costs


Global sourcing vs. International sourcing:

evidence and trade-offs


International Sourcing

• Knowledge of the international supply markets

• Competencies– Commercial– Logistics– Regulations– Negotiation– Local cultures

• Sourcing from a hub or even through a network but deploying independent strategies and processes


Global Sourcing

• Corporate-driven strategic process– Top Management Commitment: cross-functional leaders; steering

committee– Dedicated financial resources and staff– Project management

• Organization and business processes– HQ-subsidiary coordination– Rigorous and well-defined processes with clear distinction between

strategic sourcing and operational reordering– Lessons learnt approach and knowledge sharing – Supportive organizational design and ability to reconfigure

• Integration through information technology– Global data warehouses– Companywide intranet to provide access to documents, templates,

guidelines

• Methodologies for measuring savings– Metrics and validation (involvement of financial staff)– Cross-country benchmarking


International vs. Global Sourcing

Research on a sample of 169 large US MNCs (Trent e Monczka, 2005)

Domestic purchasing only 13,4%

International purchasing only as needed 21,3%

International purchasing as a part of a sourcing strategy 31,0%

Global Sourcing strategies integrated across worlwide locations

18,1%

Global Sourcing strategies integrated across worlwide locations and functions (multy country and cross-functional teams)

16,1%

Only 1/3 goes global

2/3 stay international / domestic


Global sourcing in broader context

• International sourcing– tactical – functional

• Global sourcing– strategic – linked to long-term make or buy decisions (outsourcing)– linked to off-shoring (re-location)

Global Sourcing

OutsourcingOff-shoring


Sourcing in LCC

Total cost of ownership revisited

• Static– Price ex works – Transportation cost (standard)– Customs and duty

• Dynamic– Increasing pipeline stock– Increasing safety stock due to demand and supply uncertainty – Obsolescence costs– Quality costs (warranty, inspection)– Expediting shipments (air freight etc..)– Currency fluctuations– Lost sales and stockouts

• Hidden– Underestimated overhead remaining at the HQ– Adaptation and responsibility– Loss of Intellectual Property– Geopolitical instability


(*) Financial, Insurance

Total Cost of Ownership: additional task to manage: travel, translation, consulting, expats, additional inspections

203

40

40

10

6

30

8

Current price Price fromglobal sourcing

Labor

Materials

Variable costs

Overhead

+ Margin

100

57

TransportCustoms

InventoryOthers*

52

12

67

Totale cost fromglobal sourcing

Real Saving o: 33?

Hidden costs?

Case: Enel – Power generation


Global sourcing in China

Three-step process of increasing investment and commitment

• International sourcing– Minimum Direct Investment– Cultural barriers, poor knowledge, risk and difficulties

• Global sourcing and local operations– Significant DI, sometimes customer-driven– Limited benefits in moving established automated lines from EU or US– Turning point in exploiting the potential benefits– Increasing availability of local managers and engineers

• Market penetration– Further DI in R&D and integrated cross-functional management at the

local theatre– From Western customers in China to Chinese customers– Growing role of the local managers, necessity of adaptation– Local R&D to develop the local supply base– Critical issue: IP protection (the J antecedent)


Case: ABB in China

For ABB, China ranks behind the United States and Germany in terms of sales. CEO said he believes China will be the company’s number one market in five years. “The ABB Group has a clear, well-defined five-point strategy to help us meet our ambitious targets here”.

1. Organic growth. ABB has historically achieved double-digit growth rates in China, and expects to grow 20 percent per year until at least 2008

2. New investments. More than $600 million in China. Plans to invest at least $100 million starting new product lines and factories in China in the run-up to 2008 in all major businesses

3. Cost migration. Special team to buy materials locally. ABB strategy is to build complete product lines, rather than importing certain components from Europe as it has often done in the past.

4. New research and development center in Beijing. Will drive local innovation levels higher and allow ABB to better meet Chinese customer needs.

5. Developing local talent. An important part in ABB’s five-point plan, it involves hiring an additional 5,000 employees – highly talented and well educated – in the run-up to 2008.

Business

Spina Global Scm