Globalization of Supply Chain Networks

Globalization of Supply Chain Networks#What are Global Supply ChainsGlobal Supply Chains (GSCs) are worldwide networks of suppliers, manufactures, warehouses, distribution centers and retailers through which raw materials are acquired, transformed and delivered to customers

(OECD, Supply Chains and the OECD Guidelines for Multinational Enterprises, 2002)#2The objectives of Global Supply ChainsTwo main objectives could be identified:

Prompt and reliable delivery of high-quality products and services at the least cost.

To effectively meet rising customer expectations.#3Globalization has changed the way firms do businessSince the end of WWII, the importance of trade and international investment has grown steadily.Large multinational firms have become the main players in all major sectors.Through FDI and international mergers and acquisitions, they were able to jump tariff barriers and tap into natural resources, labour, and technology, around the world.Production chains were traditionally vertically integrated, i.e. multinational firms owned an entire production process.But recent phenomena are fundamentally changing the way global firms operate.# driven by key factorsRapid technical progressLow and falling telecommunication costsTechnological advancesFalling transportation costs

The adoption by a large number of countries of more open economic policies(e.g. lower tariffs, lower FDI restrictions)

The emergence of developing, low wages economiesGoods and services can be delivered globally at lower cost.#5 giving rise to GSCs as a more established way of doing business.In recent years, we have seen a change in how firms organize their production into global supply chains:Firms are increasingly outsourcing some of their activities to third-parties.

They are locating parts of their supply chain outside their home country (offshoring)

They are increasingly partnering with other firms through strategic alliances and joint ventures.

Smaller firms and suppliers are now becoming global

These new business strategies have allowed firms to specialize on core competencies (vertical specialization) to sustain their competitive advantage.#Key enablers of Global Supply ChainsGlobalization, falling transportation and telecom costs, low tariffs, and technological improvements have changed global supply chains.

Firms are increasingly:Outsourcing / offshoring some of their activities.Relying on alliances and joint ventures for global competitiveness.Using logistics to improve supply chain efficiency.

Firms are increasingly part of global supply chains, mostly through trade and investment relationships with the foreign countries.

In order to thrive, firms need:Smart Borders and world-class transportation infrastructure.Leading edge communication infrastructure.Free trade and investment.Smart Regulations.#7Why integrating a GSC: practicality and usefulnessHelp companies compete all over the world

Expand business operations

Offer new services and applications to meet global customers needs

Give company a competitive advantage

Falling international trade barriers mean rising profits#Recent changes affecting Global Supply ChainsInternet and technological change

Proliferation of trade agreements

Falling Trade Barriers

Increase in international trade groups

New Markets#9Advantages of Global Supply ChainsReduced total costs

Inventory reduction

Improved fulfilment cycle time

Reduce cycle time

Increased forecast accuracy

Productivity increase

Improve capacity

Expand international connexion

Increase intellectual asset

Delivery improvement

Diversified business and trading

Competitive advantage

Untapped markets

Enhance speed and efficiency#Potential obstacles to Global Supply ChainsMember nations VS. Non member nations

Inefficient transportation and distribution systems

Market instability

Different languages

Differences in currencies

Differences in measurement systems (metric versus decimal)

Different customs, beliefs and cultures

Political turmoilTrade imbalances

Export surges and recessions

Greater distance

Tax policies

Operational threats

Strategic challenges

Technological capabilities

#Combating these obstacles Duty specialists and trade specialists

Join nation groups

Banding together

Form consortiums

Vertically integrate

Be innovative & Be flexible

Research

New technology

Infrastructure improvements

Reduce the number of stops in the chain

#Globalization is a driver for GSCs

#So, GSC means making operations globallyOperationsSuppliersMarketsGlobal sourcing- Dealing with foreign suppliers- Managing international logistics- Managing risks

Global manufacturing- Facility location- Coordinating networks of plants- Coordinating networks of R&D facilities- Operations in othercountries

Global distribution- Local content regulations- Managing global distribution- Managing risk

Global operations#14Traditional domestic supply chain

Supplier Locations

Plants

Static supplier baseEstablished logistics networksLimited border crossingsCoordinated customs processesEstablished carrier baseExisting infrastructureEffective regulatory agenciesRegional plant locationsIntegrated logistics centers and cross-docksNational distribution capacitySpecialized equipmentStable distancesSource: AutoDiversity Management inc. (ADMi) (2009)#Extended Global supply chain

Supplier LocationsPlants

Dynamic supplier baseIncreased number of supplier optionsMultiple source countriesMultiple International border crossingsComplicated customs regulationsVarious data requirementsMultiple mode requirementsBroad and diverse carrier baseMultiple language requirementsRegional customsHigh level of coordination Multiple plant locationsFlexible manufacturingParts commonizationIncreased mileageInternational dealership networkSource: AutoDiversity Management inc. (ADMi) (2009)#Barriers for SMEs to integrate GSCsLanguage barriers and cultural differences

Risks in selling abroad

Competition of indigenous SMEs in foreign markets

Inadequate behaviors of multinational companies against domestic SMEs/Lack of government supply-supporting programs

Complexity of trade documentation including packaging and labeling

Lack of government incentives for internationalization of SMEs

Inadequate intellectual property protection#17Forces and trends that will impact the Future Supply ChainRegulatoryEconomicEcologicalDemographicNewtechnologiesSustainability andthe scarcity ofnatural resourcesNew markets and a neweconomic balanceNew rules,new compliancyGraying andurbanisationExplosion of informationManaging complexity through transparencyDriving the value chainRedesigningsupply chain#