Introduction
to
Global Supply Chain
TEI, Larissa 2012
Global Supply Chain
Decision framework
Outsourcing
Outsourcing
What is Outsourcing?
Why Outsourcing?
Because there are others who can do it:
 cheaper
 faster
 better
 have the resources we don’t
have
Outsourcing
Outsourcing initiatives have evolved from short term
projects focused on cost savings to executive level business
strategies that enable companies to gain revenues and
profits in the competitive global marketplace.
• Outsourcing has been bantered around as the big
revolution, the new management buzzword.
•When people talk about outsourcing they are
normally NOT talking about the same “outsourcing”.
Outsourcing
Components of outsourcing
Project is the
actual work being
outsourced.
Project
Organization
that would like
to outsource.
Outsourcing
Organization
Supplier
Supplier is
the service
provider.
Factors driving the need to outsource
Outsourcing
Access to
Resources
and
knowledge
Rise of global
knowledge
workforce
Factors
driving the
need to
outsource
Increased
sophistication
of IT
External
Internal
Focus on
core
competencies
Cost
savings
Global
diffusion of
knowledge
Outsourcing
Stages
Metamorphosis of Enterprise
Metamorphosis
of Enterprise
Stages
Fragmentation
Release
Fragmentation
Consolidation
Release
Enlarging
Consolidation
Enlarging
Emergence
Emergence
Convergence
Convergence
3 E’s/Inception
Idea
egg
caterpillar
chrysalis
butterfly
Time
Outsourcing
When outsource?
Product lifecycle
?
?
?
?
Where to outsource
Where to outsource
Location
Types of outsourcing:
•On-site
•Vendor in house
•Off-site
•Onshore
•Near shore
•Offshore
Depth
•Individual - specific position
•Functional - cost center
•Competency - activities TPL
Work
•Process - standard
•Project - development
Where to outsource
High
On-shore – same country as client
with mix of in-house and external
service provision. Low risk but
minimal cost savings. Used to gain
access to improved process,
technology or to solve an internal
problem.
Control
Near-shore – nearby location with
common/similar language, culture
and business environment provides
convenience of access to
compensate for lower cost savings.
Off-shore – a foreign location with
low cost base and access to skills
supported by technology providing
equal or improved quality of service
at lower cost.
Low
Cost
High
Where to outsource
Clients place
Onshore
Near-shore
Off-shore
Drivers and logistics
implication of
internationalisation
Drivers and logistics implication of
internationalisation
Enablers of globalization
• Transport technology:
– Transport cost have continued to decline over time as a
relative cost item
– Speed is available through different transport modes
• Information and Communication Technology:
– Eliminate barriers related to geographical distance so a
networked company can be well coordinated
– Allow real time response to market change which reduces
delivery time
Drivers and logistics implication of
internationalisation
Company level drivers of globalization
• Search for low-factor and supply costs (land,
labour, materials)
• Need to follow customers internationally in order
to be able to supply locally and fast
• Search for new geographical market areas
• Search for learning opportunities and exposure
to knowledge. (Silicon Valley)
Drivers and logistics implication of
internationalisation
Consequences:
-Inventory
Inventory holding costs high and low value products
-Handling
Implementing best practice
-Transport
Cope with differences in infrastructure across
countries
Drivers and logistics implication of
internationalisation
Dimensions of different internationalism strategies
Drivers and logistics implication of
internationalisation
The time aspect:
Managing time to market
Issue
Implication
Risk of obsolescence
during transport
Especially products with
short life cycle
Rapid technological change
Increase in Inventory
holding costs
Actual transport time
Waiting time for
consolidation
Customs clearance
Drivers and logistics implication of
internationalisation
The global consolidations
Trends
• Sourcing from low-wage economies especially
commodities
– Selected suppliers despite location
– Sourcing in low-wage countries
• Western Europe to Eastern Europe and Far East
• Concentration at specific sites
• Bulk transportation / Consolidating transportation
Drivers and logistics implication of
internationalisation
The global consolidations
Risks
– Geopolitical
• Political risks
Wars - Boycotts
• Diseases
Birds Influenza – SARS – etc.
– Transportation breakdowns
• Strikes
• Natural disasters
The tendency towards
internationalisation
The tendency towards
internationalisation
Focused factories
The tendency towards
internationalisation
Focused factories
From (a) Local
To (b) global
”Focused markets”
”Focused factories”
Full range production on a local
factory to a local market
A limited range of products on a
global factory to the global market
Decentralised inventory
Central inventory
Local inventories to local markets
global inventory to global market
The tendency towards
internationalisation
Focused factories
Inventory
centralisation
against logistics
costs and service
dimensions
The tendency towards
internationalisation
Delivery strategies in a global network
The tendency towards
internationalisation
The challenges of
international logistics
and location
The challenges of international
logistics and location
What to take in
consideration:
•Extended lead time of supply
•Extended and unreliable transit
times
•Multiple consolidation and
break points
•Multiple freight modes and cost
options
Organising for
international logistics
Organising for international
logistics
The three last elements in organizing the
international logistics:
•Layering and tiering
OEM plant services global
•The evolving role of plants
Postponement
Third part logistics
•Reconfiguration process
Organising for international
logistics
Layering and tiering
OEM plant services
global
Information strategy
Organising for international
logistics
Paint are mixed
at the shop
Production - postponement
Shop
Production
Distribution
Flow of goods
Customer order
Organising for international
logistics
The evolving role of plants
Third party logistics:
• Long-term cooperation agreement between two companies
that consider each other partners with the purpose of
meeting the requirements of the transport buyer
• Earlier the focus was on the transport costs
• Today several links of the supply chain can be included:
storage, labelling, packing, mounting…..
Reverse logistics
Reverse logistics
Reverse logistics deals with the flow of goods
going back up the supply chain for a number
of reasons:
•Product returns
•Repairs
•Maintenance
•End-of-life (recycling)
Reverse logistics
How to solve this problem!
When you build up the supply chain, think at the
reverse logistics at that time, and make sure that
the chain can handle the reverse logistics
It has something to do with customer service!!
The role of time in
competitive advantage
The role of time in competitive
advantage
A working definition of competing on time is:
The timely response to customer needs
The role of time in competitive
advantage
The quality approach demonstrated that
good quality reduces costs!
The trade-off between cost and quality can be altered
by PREVENTING defects from happening
Costs reduction:
•Design the process so that defects cannot occur.
•Deign products so that they are easy to make and distribute.
•Training personal so that they understand the process and its
limitations.
The role of time in competitive advantage
Total quality costs=
(prevention + detection + failure)
•Costs do not have to increase in order to improve quality,
they can reduce.
•Costs do not have increase when lead times are reduced.
It may possible to reduce both in some processes.
•Costs do not have to go up as product variety increases
and time reduce, they can also reduce
The role of time in competitive
advantage
Time-based opportunities to add value:
•Increased responsiveness to customer needs
how long time it takes to deliver the product
•Managing increased variety
reducing the over all lead time
•Increased product innovation
meet customers need by using short development time
•Improved return on new products
short developing time earlier on the marked
•Reducing risk by relying less on forecast
wrong ones and lucky ones
The role of time in competitive
advantage
Lead time:
Lead time
95%
Input
Wait for
inspection
Wait to
be moved
Move
time
5%
Wait in queue
for operator
Setup
time
Run
time
Output
The role of time in competitive
advantage
Improve return on new products
Managing timeliness
in the logistics
pipelines
Managing timeliness in the
logistics pipelines
Strategies for managing timeliness in the logistics
pipeline:
•Make to Stock:
Products for customers are available from stock of
finished goods
•Assemble to order:
By shifting the decoupling point upstream it is possible to
reduce risk of holding inventories of finished goods.
The design must be flexibly, because the end product
are made from a combination of basic components
Managing timeliness in the
logistics pipelines
Strategies for managing timeliness in the logistics
pipeline:
•Make to order:
The customer order decoupling point is moved to the
product design.
Many different end items are made from a small group of
components
•Engineered to order:
The product is specially designed and produced to that
actual order.
Delivery service
Delivery service
Definition:
The part of the company's customer service
that concerns the ability to deliver goods
and services to the company's customers
Delivery service
Delivery time include:
 Technical order handling
 Administrative order handling
 Purchase delivery time
 Production delivery time
 Distribution delivery time
Technical
Administrative
Purchase
Production
Distribution
Delivery service
The sale increases as a function of the growing delivery
service:
Sales volume
Delivery Service
Delivery service
Storage service degree
Is the expression for the company's wish to
deliver from stock.
Measure:
Storage service degree = Delivered number of orders x 100
Number of orders
Delivery service
Storage service degree
January
February
March
April
May
June
July
August
September
October
November
December
Ordered
quantity
2688
3000
10000
700
950
5000
6800
9000
230
240
15000
800
Delivered Storage
quantity
service
degree
2500
2700
10000
690
600
4500
6300
9000
190
180
15000
700
93
90
100
98
63
90
92
100
83
75
100
88
120
100
80
60
40
20
0
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Fe
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Ap
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ay
Ju
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Ju
ly
Au
Se gust
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m
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Oc
to b
er
No
ve
m
be
De
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m
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Month
Delivery service
Delivery observance:
Create trust between partners in the supply chain.
Measures:
Delivery observance = Number of orders delivered on time x 100
Total number of orders
Delivery observance = Number of articles delivered on time x 100
Total number of delivered articles
Delivery service
Delivery flexibility:
 Production flexibility:
ability to deliver new products
 Function flexibility:
ability to deliver variants
 Volume flexibility:
ability to change the volume
 Distribution flexibility:
ability to use different transport
Are all qualitative elements and difficult to measure.
Delivery service
Delivery information:
To create trust between partners in the supply
chain by offering information about orders and
goods, by releasing delivery information using
effective information systems
Logistics costs
Logistics costs
Supply Chain & Inventor Costs:
• Expedited Raw Material Inbound to Factory
• Inventory Write offs inclusive Excess and
Obsolescence, Shrink, etc.
• Factory to Distribution Center Transportation
(Freight)
• Freight to Customer
• Finish Goods Warehouse (Space & Handling)
• Inventory Carrying Costs (Cost of Capital)
Logistics costs
Transportation costs:
Inbound and outbound transportation of goods
and internal goods handling, in the company
•Transport
•Insurant
•Duty
•Forwarding of goods
Logistics costs
Warehousing costs:
Covers the operation of the warehouse:
Rent, energy etc. and unsalable, waste, damage
•Internal transportation materiel
•Fork lift
•Salary
•Insurant
For: Raw materials stocks – WIP – Finish goods stocks
Logistics costs
Warehousing costs:
Cost of locked-up capital in inventory
• Raw material
• Work in progress
Safety stock!!
• Finished goods
and interest of the locked-up capital
Logistics costs
Stock turnover rate:
Shows how many times the inventory of a specified
product realizes in a fixed period, normally one year
Measure:
Stock turnover rate =
Goods consumption
The average value of inventory
High Stock turnover rate gives low inventory costs
Logistics costs
Other Costs:
• Ongoing Managements Costs (Planning,
Purchasing, Engineering, etc.)
• Import Tax & Duty
• Corporate Income Tax
• Product Capital
• Facility Capital
Logistics costs
Managements Costs:
Contain all costs for the employees, technical
and administrative order handling, operation
of IT system in the logistics area
Logistics costs
Hidden Costs:
•
•
•
•
Cost of Price Markdowns
Cost of Lost Sales due to Inventory Availability
Cost of Lost Sales due to Trade Agreements
Cost of Stock Outs (Additional Costs of Finish
Goods Transportation to Customer)
• Quality Costs (Rework etc.)
Logistics costs
Lack costs:
Arise when a customer chose a competitor and
meet with delays.
For instance:
•Better delivery service
- Delayed deliveries causes
production stop
Logistics costs
Trade off between delivery service and logistics
costs:
Amount
Logistics costs
Income
Profit
Deliver service
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