Supply Chain Management Lecture 5 –

Globalisation

Alexa Kirkaldy

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Lecture 5 - Learning ObjectivesOn completion you will be able to:

• Define globalization as a phenomenon• Recognise the key drivers for change in the global economy• Explain the evolution of multinational and international logistics

strategies• Recognise sources of risk from operating globally and in particular

recognise the exchange rates risks that arise and identify methods to manage these risks

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Definitions of Globalization• The growing integration of economies and societies

around the world (Source: World Bank http://www.worldbank.org/ )

• Globalisation offers companies opportunities to simultaneously grow revenues and decrease costs (Source: Chopra and Meindl)

• Is the convergence of trends in markets, products, consumer behaviour and society. – Tony Hines, “Supply Chain Strategies”, 2004, Elsevier, page 7

• Is a trend, the destination has not been reached

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Drivers of GlobalisationGrowth in world tradegreater than growth in

GNP/GDP

Liberalization of trade via WTO Development of global

transport infrastructure

Information technology improves global communications

Global competition increases search for lower labour costs

RegionalisationTriads - North America, EU,

Japan/Pacific Rim

Overcapacity in many industries

% of imports and exports vs world GDP

Container movements have increased rapidly since 1981

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Port capacity and demand is increasing

… air freight volumes continue to increase

• In 2014, airlines transported 51.3 million metric tons of goods, representing more than 35% of global trade by value but less than 1% of world trade by volume.

• Equivalent to $6.8 trillion  worth of goods annually, or $18.6 billion worth of goods every day.

and are forecast to keep doing so!

http://www.airportwatch.org.uk (2015)

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Implication of International Competition

Low High

Low

High

Trading Industries• Defence

hardware• Aerospace• Textiles and

apparel• Shipbuilding

Trading Industries• Defence

hardware• Aerospace• Textiles and

apparel• Shipbuilding

Multinational Industries• Investment

banking• Fast-food

restaurants• Management

consulting• Packaged

groceries

Multinational Industries• Investment

banking• Fast-food

restaurants• Management

consulting• Packaged

groceries

Sheltered Industries• Furniture• House building• Grocery retailing• Domestic services

Sheltered Industries• Furniture• House building• Grocery retailing• Domestic services

Global Industries• Automobiles• Consumer

electronics• Petroleum• Semiconductors

Global Industries• Automobiles• Consumer

electronics• Petroleum• Semiconductors

International investment (foreign owned assets)

Inte

rnati

on

al Tr

ad

e (

worl

d

exp

ort

)

Source: Dr Dawei Lu, MSc SCM module, WMG

Regionalisation

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Source: OCR

Offshoring

12

Source: OCR

13

Source: OCR

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Scenarios in 2020• Globalisation unbound

– trade barriers progressively dismounted; accelerated technological progress; integrated financial markets

• Controlled globalisation – further gradual trade liberalisation constrained by security concerns

and protectionist pressures

• Globalisation in retreat– protectionist sentiment thrives in a climate of insecurity

• Globalisation sunk – global markets disrupted, stagnant consumption; technical advances

dwindle; restrictions on trade, migration and investment

10%

65%

20%

5%

Source: Economist Intelligence Unit (2006) Foresight 2020: Economic, industry and corporate trends

Evolution of Logistics Strategies

Sourcing Manufacturing Inventory Distribution Sales

Stage 1 – Direct export

Sourcing Manufacturing Inventory Distribution Sales

Stage 2 – National warehouses

Activities in home country

Activities inEurope

Evolution of Logistics Strategies

Sourcing Manufacturing Inventory,Distribution

Sales

Stage 3 – Logistics centralisationSourcing and primary

manufacturing

Stage 4 – Postponed manufacturing

Activities in home country Activities in Europe

Inventory,Final manufacturing,

Distribution

Sales

Harrison A. and van Hoek R. “Logistics Management and Strategy”, Pearson, 2nd edition 2005, p. 115

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Stages in Global Supply Management

• Stage one: International purchasing– Price and volume

• Stage two: Global sourcing– Supplier capabilities– Supporting market entry

• Stage three: Global supply management– SC optimisation– Risk management

Burt, D. (2010) Global Supply Management. In: Burt, D. et al. Supply management. 8th ed., London : McGraw-Hill, Ch.12, pp.276

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Companies Reasons for Global Sourcing

To benefit from:• Lower total cost• Superior quality• Better timeliness• More advanced technology• Broader choice of suppliers• Expanded customer base

Burt, D. (2010) Global Supply Management. In: Burt, D. et al. Supply management. 8th ed., London : McGraw-Hill, Ch.12, pp.276-277

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Problems faced by Companiesfrom Global Sourcing

• Cultural issues• Long lead times• Additional inventories• Lower quality• Social and labour problems• Higher cost of doing business• Higher opacity

Burt, D. (2010) Global Supply Management. In: Burt, D. et al. Supply management. 8th ed., London : McGraw-Hill, Ch.12, pp.277-278

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Global Pipeline – Transport Variability

From point of origin to

port

Freight forwarding/

consolidation

Transit to country of destination

Customs clearance

Transit to

point of use

Total elapsed

time

Maximum 5 7 15 5 5 37

Average 4 3 14 2 4 32

Minimum 1 1 12 1 2 17

Christopher M., Logistics & Supply Chain Management, Pearson, 3rd edition, 2005, p. 217

Impact of Globalization on Supply Chain Networks

Risk Factors Percentage of Supply Chains Impacted

Natural disasters 35

Shortage of skilled resources 24

Geopolitical uncertainty 20

Terrorist infiltration of cargo 13

Volatility of fuel prices 37

Currency fluctuation 29

Port operations/custom delays 23

Customer/consumer preference shifts 23

Performance of supply chain partners 38

Logistics capacity/complexity 33

Forecasting/planning accuracy 30

Supplier planning/communication issues 27

Inflexible supply chain technology 21

Source: Chopra and Meindl, 5th Edition 2013, Page 156