Over the last three decades, the progressive liberalization of cross-border transactions, advances in production technology and information services, and improvement in transport logistics and services have provided firms with greater incentives to fragment production processes and to geographically delocalize them. Global supply or production chains (GSCs), where cost reduction strategies result in goods often being produced with intermediate inputs originating from several countries, are now common in many industries and extend over to an increasing number of developing countries. From an economic standpoint, the emergence of GSCs is related to the concept of comparative advantage. By relocating production processes (i.e. R&D, concept, design, manufacturing, packaging, marketing, distribution and retailing) in different countries, transnational corporations (TNCs) can take advantage of the best available human or physical resources in different countries, with a view to maintaining their competitiveness by augmenting productivity and minimizing costs. For developing countries and their enterprises, the potential opportunities from joining GSCs are substantial. Indeed, integration into GSCs has become an important pillar of their policies for export-led development. GSCs enable producers within the chain to obtain modern management know-how and hands-on information on quality standards and technology, and thus to become more competitive. Such producers also quickly learn about demand patterns in high-income markets and consumer preferences in such markets. Participation in GSCs could also create economy-wide externalities for developing countries, such as employment, improvement in technology and skills, productive capacity upgrading and export diversification into more value added. In turn, those externalities would increase their attractiveness for more foreign direct investment. These potential gains explain the acute interest of policymakers in many developing countries over ways to link their private sectors to GSCs. However, GSCs are fundamentally a business strategy of TNCs, and are driven by their own business interests. Low labour costs alone are not a sufficient justification for relocating a part of TNCs’ production processes. GSCs also rely on sophisticated and competitive networks of goods and information flow. Participating and upgrading along the chains require not only manufacturing skills but also a sound business environment that are often lacking in developing countries. GSCs have different structures depending on three main factors: (1) the geography and nature of linkages between tasks in the chain; (2) the distribution of power among lead firms (TNCs) and other actors in the chain; and (3) the role of government institutions and policies in structuring business relationships and industrial location.
The first factor, the geographical structure, is determined by the extent of fragmentation of production processes and by their delocalization. While the extent of fragmentation is generally specific to the sector, the choice of where to delocalize production processes depends not only on production and trade costs but also on the potential size of the domestic/regional market, as well as on the proximity to high-income markets. The extent to which local markets are integrated with regional/international markets both in regard to trade policies and infrastructure development is also important.
The second factor, the distribution of power among the various firms of GSCs, is reflected in the different organizational structures of GSCs. Their structures can be classified in terms of the relational linkage between the buyers (lead firm) and their suppliers of manufactures. One extreme is the case of vertical integration where some of the manufacturing stages are directly owned by the lead firm while certain parts and components may be bought from contract suppliers. The other extreme is the case of a contractual relationship at arm’s length, where buyers do not necessarily know and do not own their suppliers. Numerous types of ownership structures can be found anywhere within the wide spectrum of the buyer-supplier relationship. The third factor is related to government intervention. Governments play an important role in facilitating the integration of domestic firms into GSCs. Governments have often recurred to trade policies to increase the competitiveness of their enterprises, especially by seeking preferential market access. Indeed, by lowering trade costs trade policies can help to integrate domestic firms into GSCs. However, trade policies although still important are not sufficient in the GSCs business model. The removal of behind-the-border trade-related barriers is also necessary. Moreover, policies aimed at improving the overall business environment are essential to facilitating the integration of domestic firms into markets that are increasingly dominated by GSCs. The first two factors do not pose policy implications and are largely dependent on the business model of a specific economic sector. Therefore, the special focus of this paper is to provide some insights on the third factor so as to see how government institutions and policies, particularly trade policies, may influence the participation of developing country enterprises in GSCs, including progressive process and production upgrading and export value addition with economy-wide effects.
Trade and Economic Policy
Trade policies directly affect the integration of domestic firms into GSCs in two major ways. First, trade policies can add to the cost of inputs. Excessive tariffs on intermediate products make countries less attractive to global investment and are detrimental to the localization of production processes. Second, unfavourable market access conditions would put assemblers in a position of relative disadvantage when distributing final products to consumers. To minimize this cost, lead companies generally prefer delocalizing the last blocks of GSCs in countries with duty free or preferential access to final markets. This is one of the reasons why preferential trade agreements improving access to developed country markets are important determinants in the localization of production processes. Another policy response is illustrated by the WTO multilateral Information Technology Agreement (ITA), which eliminated MFN tariffs on a wide range of computer-related equipment (including semiconductors and software), as well as telecommunication and certain office equipment. These goods represent a crucial flow of international trade amounting to about US$4 trillion. Today ITA has 73 WTO members States, including both developed and developing countries, and covers about 97 per cent of world trade in information technology products. Trade policy is often directed to protect final products rather than intermediate products. This provides an advantage to the localization of the last blocks of production processes in consumers’ markets. The relatively lower tariff on intermediate products provides a greater incentive to import them (and thus to be produced in developing countries). On the other hand, the higher tariff on final products provides an incentive to localize assembly in large (or potentially large) consumer markets, or in countries enjoying free access to consumer markets. This trend, where tariffs increase along the production chain, is generally referred to as tariff escalation. Tariff escalation is often used to provide an advantage to domestic firms engaged in the assembly of the higher value added final product rather than in the provision of low value added intermediate products.
Overall trade policy is captured by two indicators: effectively applied tariffs imposed on intermediate products, and those tariffs faced by final products. The overall business environment is measured by the World Bank’s Doing Business Index. This Index provides a measure of various aspects affecting the business environment, including government regulations such as for starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, enforcing contracts and closing a business. Although all of these indicators normally ameliorate with the growth of GDP per capita, they are also positively correlated with participation in GSCs. Countries with economies more integrated into GSCs tend to have more open trade policies, face lower market access restrictions in high-income markets (the main location of lead firms), and have a more conducive business environment. The reason for the correlation is that the effectiveness of business models behind GSCs is highly dependent on the above variables.
By abating trade costs, more open market access conditions do contribute to the integration of countries into GSCs. However, given the already low level of effectively applied tariffs, the additional advantage provided by further trade liberalization through unilateral measures or market access negotiations is generally not large. For example, for low-income countries, a reduction in the applied tariff on intermediate products from the existing average of 3.22 per cent to 1.37 per cent (a level similar to that of middle-income countries) would increase their trade in intermediate products by about 8 per cent. A similar effect would result from an improvement in market access (a reduction in the tariff faced by their final and processed products from 3.19 per cent to 1.5 per cent). It also appears that middle- and low-income countries could achieve similar trade effects through the better functioning of existing export processing zones (EPZs) and more efficient management of formally applied duty drawback systems so as to implicitly eliminate or reduce tariffs on imported inputs for export-oriented enterprises. On the other hand, a sizable improvement of the business environment would result in far more positive effects on the growth of trade in intermediate products, particularly for middle- and low-income countries (for both developing countries and economies in transition). Tariffs are traditional price-based trade policy instruments, while non-tariff measures can also add to the cost of trading and thus have an impact on the extent to which firms and countries integrate into GSCs. Although the information costs of non-traditional trade barriers are often internalized by lead firms, some of these barriers still add to the overall costs of moving goods along the chain. In particular, non-tariff measures such as standards, technical regulations, conformity assessment systems, complex rules of origin, subsidies and restrictive trade-related financial and investment regulations that protect domestic industries from foreign competition have today a relatively greater and growing importance in shaping the participation in GSCs. Removal of such barriers through, e.g. a deeper integration through regional preferential trade agreements (RTAs), is found to double trade in intermediate products among their members. Today almost all RTAs include trade facilitation and technical assistance measures. These agreements do facilitate the de-localization of production processes by removing behind-the-border obstacles to trade.
However, as an increasing number of developing and developed countries move towards freer trade via RTAs, the relative advantage provided by open trade policies is not sufficient to make a country attractive for the localization of global production processes. Economic policies that reduce overall business costs or minimize the risks from international business relationships may be of greater value for facilitating integration into GSCs. Thus, policies that improve trade-related infrastructures, increase competition in trade-related services, facilitate business start-ups, guarantee the rule of law and contract enforcement, and provide fiscal and other incentives to foreign firms are essential.
In addition, the effectiveness of government institutions and their capacity to implement policies are critical. GSCs also often involve long-term investments that require equally long-term government commitments with regard to stable and predictable policies. For example, political instability and the resulting government policy instability is detrimental for turning domestic firms into reliable suppliers of GSCs. Econometric estimation suggests that an improvement in government effectiveness in low-income countries to match that of middle-income countries would increase the former’s exports of intermediate products by almost 50 per cent. The larger importance of business environment and government effectiveness for GSCs is directly related to their increasing sophistication and drive for efficiency. GSCs are extremely competitive not only because they take advantage of localization due to lower labour costs, but more so because such competitiveness comes from a sophisticated management of the chain. The majority of modern GSCs appear to rely more on the ability to move goods continuously, safely and economically than on lower labour costs. In this regard, one of the key aspects of GSCs is synchronization: goods flow in and out of chains in a just-in-time process, so as to keep costly inventories at a minimum. However, when inventories are low and a problem occurs in any of the production blocks, it quickly spreads along the entire chain with snowballing costs. GSCs are often as fragile and prone to failure as is their weakest supplier. Thus, it is crucial that all players in a chain are fully reliable. In practice, there is a trade-off between the reliability of suppliers and production costs. In general, the more knowledge-intensive a product is, the more GSCs are dependent on specialized and reliable suppliers. This is one of the reasons why most of LDCs’ enterprises are stuck in a low value added segment of chains, and are operating in sectors where chains are shorter and less technologically intensive (i.e. the apparel and agro-food sectors). Another issue that hinders the participation of developing countries in GSCs is the relative lack of medium- sized and large enterprises. Small enterprises often face additional obstacles that make it difficult to enter GSCs. For example, GSCs require investments to guarantee timely shipments and high quality parts and components. Difficulty in investing in productive and trading capacity is one of the reasons that small enterprises are often locked into low value added production processes with little opportunity to upgrade along the value chain. Most importantly, small enterprises are also disadvantaged as they rarely have management expertise able to meet the complex problems that GSC management involves. Moreover, small enterprises often supply a single lead firm, thus making the entrepreneurship less dynamic and more vulnerable to shocks. An essential element in GSC integration is the availability of skilled labour. The production of goods for international markets, particularly by means of supplying a GSC, requires a skilled labour force, with technical, managerial and entrepreneurial expertise. Therefore, from a policy perspective, there is a need to invest in the development of human skills and capabilities, as well as in knowledge-based services. It is also important to allow for qualified foreign labour permits so as to import missing critical skills.
Finally, in cases where the lead firm owns part of the GSC, tax policy is an important determinant for the localization of production. By looking at the differences in taxation across countries, lead firms tend to optimize supply chains also based on tax efficiency.
The Value Chain
Although participation in GSCs helped a number of developing countries to expand exportoriented industries, in many cases, the value added from such activities did not increase markedly over previous commodity-based exports. To rise along the value chain, an industrial or process upgrading is required. Gereffi, Humphrey, and Sturgeon (2005) define industrial upgrading as “the process by which economic actors – nations, firms and workers – move from low-value to relatively high-value activities in global production networks”. Process upgrading occurred in most regions, although to a different extent. In 1993, Latin America, East Europe and East and South-East Asia had largely a similar level of export sophistication. By 2008, export sophistication increased in all of those regions, though the largest increment was observed for East and South-East Asia. Similarly, in 1993 the average level of export sophistication of South Asian and sub-Saharan African countries were similar, but by 2008 South Asian export sophistication was much higher. Furthermore, some of these countries were able to increase their export sophistication by transforming export-oriented industries (as parts of GSCs) from those based on raw materials and low-technology manufacturing (agro-food, apparel, footwear, etc.) to ones dominated by medium-technology exports. An important policy question is why some developing countries were able to surge ahead in diversifying into more value addition within GSCs, while others did not succeed. Many of the factors mentioned above are quite relevant in this regard. Indeed, sound macroeconomic policies, a favourable business environment, the development of human capital, economic links to high income markets, sector-specific industrial development policies, natural resources endowments all determine the success or failure of the export diversification of countries. Still many questions remain open. To properly address those questions, there is a need for more research and better data, including those on TNCs as lead firms. Knowledge of production processes is one of the keys to industrial upgrading and export diversification. For countries that are lagging behind, knowledge must come from absorbing it from elsewhere. GSCs can be a powerful force in enabling technology transfers and industrial process upgrading. In this regard, many mechanisms were examined, from arm’s length technological borrowing to a range of practices that encompass technology licensing, reverse engineering, the injection of equipment and know-how through foreign direct investment and firm level adaptation, to demands made by both foreign affiliates and overseas buyers. One important question that needs to be studied more deeply is what makes lead firms in GSCs transfer higher value added processes to developing countries. So far, the evidence suggests that lead firms tend to outsource lower value added activities (including final assembly), while retaining control over the higher value added areas of their core competency, such as R&D, intellectual property, design and distribution.
Being able to participate in GSCs may be a sign of a country’s growing productive capacity. Moreover, having a strong relational linkage with the lead firm in a supply chain could enhance a transfer of knowledge, technology and even financial capital into the suppliers’ country. In this way, participating in a GSC can play a catalytic role in a developing country’s economic growth through productive capacity upgrading. However, such a level of GSC participation appears to be possible only for countries which already have some prerequisite productive capacity, which are mainly middle- to higher-middle income countries. Technology transfer within a GSC is not automatic. Lead firms, especially those of products or production technique/processes with high intellectual property content, may restrictively control technical and technological spill over to subcontracted suppliers. In addition, the investment strategies of TNCs should be borne in mind. For example, there is evidence to suggest that much of the profits of the United States of America’s lead firms’ during 1996–2006 was financialized (through share buyback or a dividend increase) “… to raise shareholder value, rather than investing in productive assets that raise productivity, growth, employment and income.” Would a new model of social business-linked FDI, such as the Grameen Danone Foods Ltd, provide a useful insight into a new architecture of a global/regional supply chain? As regards low-income countries, being a part of a GSC could be seen as probably the more rapid way to become integrated into the global trade in manufactures and services. However, the segments within a GSC, in which low-income countries mostly participate are limited to the bottom of the value added ladder with a low barrier to entry – these are labor-intensive products with low-tech requirements and low set-up costs, such as assembly in apparel and light manufacturing industries. Low barriers to entry often create price-cutting competition among supplier countries. As a result, declining net barter terms of manufacture trade in such low income countries was observed over the past decade. Also problematic is that the relational linkages between the lead firm and the supplier in these industries are often very loose and unstable. Lead firms benefit from the severe competition among numerous and almost identical suppliers and select the ones that meet their short-term requirements. The potential negative effects of such unstable contracts, particularly to the local labor market, were noted by many researchers. The challenge to suppliers and governments of low-income countries is to transform the declining net barter terms of trade into an increase in income terms of trade through larger export volumes (i.e. winning over the competitors) or through concurrently achieving a growth in factorial terms of trade, i.e. a productivity increase. For a local supplier to win a more durable relationship with the lead firm, it needs to become cheaper, better in quality, quicker in delivery, and more reliable than its competitors within an industry. Such process upgrading could lead suppliers to move upwards to a higher value added segment in a GSC, e.g. a move from a standard mass production into more design-specific and other requirement-specific production. Firms in a low-income country often face higher obstacles in achieving both process and product upgrading. Government support can play a role especially in regard to investment promotion policies to attract more buyers (lead firms); reducing tariff and non-tariff barriers for imported production inputs; and bottoming up the supply efficiency, by improving business environment, transport, logistics, education and training; guaranteeing long-term commitments in policies (especially trade and fiscal policies) so as to minimize the risk for foreign enterprises and business relationships. Non-policy factors are also among the determinants of a successful process and product upgrading. Those include (a) the length of the value chain to the final product (or depth in the manufacturing segment), i.e. how many parts and components to move into; (b) product characteristics (standard or differentiated); (c) the structure of a GSC; (d) the interest of a leading firm in assisting with the product upgrading (though technology/financial injection); (e) the market situation (competitors, stepladders vacated or not, etc.); and (f) the comparative advantage, including geographical and/or population consumption assets (e.g. being close to a big market, having a large domestic market). As Rob Davies, Minister of Trade and Industry, South Africa put it, “Identification and choice of sectoral interventions is based on identification of first-order constraints that cut across most of these sectors and sectoral “self-discovery” processes. The latter involve a combination of research of international and domestic trends, consultation with key stakeholders – particularly business and labor, policy and instrument design attached to appropriate conditionality and periodic review and adaptation.”
The size of a country matters in a GSC. A large domestic market by itself attracts foreign firms to set up a basis and localize thereafter some or main segments of their GSCs targeting both exports and domestic consumption. Smaller developing countries have less leverage in creating a strong relational linkage with lead firms. A solution for such countries is also to diversify into new markets, in particular regional (neighbouring) markets, in addition to their efforts to integrate into GSCs. A recent study by UNCTAD suggests that Asian LDCs’ exports to other developing countries, which are mostly their neighbouring countries, are higher in factor intensity. That is to say that South-South trade, especially within a region, may offer some alternative upgrading opportunities to low-income countries. Governments within a region can also collaborate with each other in the areas of improving the market information flows of a given industry/sector (e.g. agroprocessing) or establishing a regional laboratory for product quality assessment. Regional collaboration could be equally useful for R&D for products/services that are best suited to the demands of regional consumers (with much less disposable income compared to OECD consumers), with an added new technological element. Distance is often assumed to be among the main determinants of trade costs and thus also of countries’ participation in GSCs. However, it is not distance itself that is a direct hindrance to trade, but rather transport costs and transport connectivity, which in turn are related to the facility with which merchandise trade can be carried out. An UNCTAD study on the Caribbean region found that distance explains around 20 per cent of the variance of maritime freight rates, while competition among liner shipping companies and economies of scales each have a far stronger impact on the freight rate. When there are 5 or more competing carriers providing direct services, the freight rate is one third lower than when there are four or fewer providers. This example suggests that the strategic liberalization of transport services, through its impact on competition and economies of scale can have an important and in some cases perhaps decisive impact on the establishment of regional trade connections and participation in GSCs. Transport infrastructure and services together with trade facilitation and modern customs procedures are a sine qua non both for export competitiveness and for a country’s participation in GSCs. As global transport networks expand and ships get larger and port traffic grows, many LDCs are lagging behind and are not catching up as regards their access to shipping services. While globally the international liner shipping network is expanding, for many LDCs the number of shipping companies providing services from and to their ports is stagnant or even decreasing. Without effective international transport connections, trade cannot grow. While trade and transport facilitation is usually a good long-term investment, it still requires financial resources. Globally, during recent years, technical and financial assistance to support trade and transport facilitation has increased significantly. However, most of this additional assistance has gone to middle-income developing countries, and not as much to LDCs. In LDCs, it appears that the resources of donors may compete with other priorities, such as health or education. Many practical solutions to trade and transport facilitation reforms require regional or bilateral cooperation, for example as regards transit, the harmonization of documents, the recognition of certificates, transport infrastructure, coordination at border crossings and so on.
Objective of the Corporate Training Program
– Understand the rationale for the development of Global Supply Chain Development and Management
– Understand the contribution of a defined supply chain strategy to an organizations overall operating efficiency
– Reveal the analytics of benefit accrual from the implementation of a systemic approach to GSCD
– Understand the relational dynamic between procurement, suppliers, logistics and how they affect your GSCD efforts
– Understand the major challenges that organizations face in developing and implementing supply chain strategy
– Exposure of key tools and measurement metrics for deploying GSCD
Break the engagement into phases I – V; Determine clients’ needs relative to time and budget that will condition the cadence of GSCD phase deployment of instruction or learning; Evaluate group size for best learning scenario; Hand outs and Power Point Presentations for the program participants; Follow up with client to refine approach or expand or compress mission scope.
Global Supply-Chain – The impact of globalization upon the supply-chain
The globalization of business is the best thing to happen to supply chain management (SCM) in the last 30 years. This seemingly bold statement is made not because globalization has made SCM any easier quite the contrary. Driven by overwhelming market forces, globalization has forced countries and companies to become more efficient, creating the infrastructure and competitive advantage necessary to survive the early rounds of a brawl that will undoubtedly go beyond the last bell. Unfortunately, whether one is in favor of or against globalization is irrelevant for purposes of this discussion. Although both sides of the globalization debate have valid points, the fact is that it will continue. Reality dictates that if companies intend to not just survive but prosper in a hyper-competitive environment, they would be well advised to acknowledge the complex nature of the terrain in which they find themselves deployed. What is relevant to this discussion, however, is a basic understanding of what globalization is and its significance to the field of SCM. Globalization assumes many faces, but in the realm of economic development it revolves around the nurturing of commerce through the removal of both tariff and non-tariff barriers to trade. Driven mainly by the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), countries that embrace globalization allow access to their markets through lower tariffs while seeking reciprocal business opportunities in member countries around the world.
Globalization has created both opportunities and risks for companies, as the more connected economic environment has brought more customers and new markets whereas also bought larger extent of competitors. Globalization process along with the emerging of new markets for goods and service, new resources and supplier, and new pools of labor creates opportunities to companies. The more collaborative environment makes it possible for companies to reduce cost and focusing on these core competencies to participate more profitably in the global trade. Accompanied with the opportunities, challenges regard to supply chain also presented with the globalization. The global marketplace has made supply and demand more volatile and hard to forecast as there is a greater reliance on different companies spread over great distances. The global network made the supply chain more complex as the increased number of suppliers, customers and plants spread throughout the world. This can make it difficult for managers to maintain an adequate level of control over their operations. There is also increased competition from low cost products from overseas markets. Expanded market also means a broader range of competitors, companies devote themselves to explore more efficient technologies, strategies to provide better quality products, faster delivery service, and lower cost in order to maintain their comparative advantages in the global competition. Decreased number of information is another factor that may undermine the global supply chain. With large number of partners and franchises, decisions are difficult to be made with full information and therefore brings risk to the supply chain. The uncertainty accompanied with the globalization process, companies are seeking for new methods and strategies to mitigate the risk and take control over the uncertainty factors. Have a better understanding of the risks and prepare for an plan to response to the issues coming out is the way to enhance the ability of companies to stand against the challenges.
“Being Successful Means Managing Uncertainty. How will you face so many uncertainties and potential challenges? You certainly can’t control all external forces (political, natural disasters, energy costs, counterfeiting, and others), but you can start by making SCRM an integral part of your organization’s strategic planning process and redefining your internal practices and processes. As you plan for the future and build on strengths, make sure you understand the risks and threats that could cause you to lose competitive advantage. All of your executives need to be involved in this process. In addition, you will need an emergency plan for new external or internal threats. A proper SCRM plan is not about building fear in the organization, but rather about bringing peace of mind. Your organization will have taken the time to understand what is important and how to protect it, should a crisis happen. This will ultimately make your organization stronger and ready to take advantage of situations that cause others to flounder.”
Global Supply-Chain – Methodology
Supply Chain Development and Management, along with the closely related subject matter of logistics are the cornerstones of a competitive global corporate strategy, increased market share and amplification of stake holder value. Global Supply Chain Development (GSCD) provides in Phase I a framework for your understanding of supply chain development and management and its related components e.g. comprehensive introduction to supply chain management, an overview of all of the important dimensions logistics and their peculiar relationship to both supply chain management and its relevance to global trade strategy. Phase II is related to is related to strategic factors, supply chain relationships and third party logistics services, performance metrics and financial analysis, along with an emphasis on information systems and the discipline they create. Phase III addresses the key process steps within supply chain fulfillment e.g. order management and customer service, inventory management, transportation and distribution. Phase IV delves into the subject topic area of supply chain planning, sourcing and operations, tools needed to design, develop and refine a supply chain network, alongside of procurement and strategic vendor relationships. Phase V covers the areas enveloped by major macro industry trends that will condition the future of logistics and supply management as well as specific strategies that will enable sustained competitive strength.
Global Supply-Chain Development (GSCD)
To be competitive in today’s global marketplace, and to effectively serve global operations, supply chains must also be “world class”. This paper provides a step-by-step approach to global supply chain development, contrasts global to domestic development, and identifies challenges, complexities, and strategies for building multi-national supply chains.
Domestic vs. Global Supply Chains
Current State of Global Supply Chain Activities
Today top management of major corporations realize that good management of supply chains (including purchasing, finance, materials management, transportation and logistics management, quality management, information technology and time management) can make major contributions to the bottom line and help their organizations implement strategic initiatives and achieve overall goals. As a result of developments in communication and transportation, globalization is now accepted as a “way of life,” the normal way of doing business. In many, if not most industries, companies must adopt a global view of their operations in order to survive. Unfortunately, many corporations are still stuck in the domestic paradigm and are not aware of, or taking advantage of improvements and benefits that could come from an optimal global supply chain.
Changing World Situation, Growing Need for Global Supply Chains
Some changes that are underway and moving swiftly that affect globalization of supply chains include: more investment by U.S. industries in non-U.S. areas, increased international spending activity by major U.S. corporations, mergers, acquisitions, and joint ventures involving companies from different countries linking more organizations across the globe, and more organizations are making purchasing and supply decisions based on total cost of ownership and value added. Many buying and selling markets are worldwide, creating the need for optimized, global supply chains. Improvements in transportation and communication technology have made the creation and management of global supply chains efficient and effective to serve either domestic or worldwide requirements.
Corporations seek to apply technology and immediately obtain returns from technological investment before obsolescence occurs. Information technologies have enabled the aggregation of category spend across organizational business units around the world, thereby enabling strategic sourcing, strategic cost management and “supply-demand optimization. This development has facilitated cross-functional, cross-organizational approaches to sourcing activities, enabling total cost savings and other key synergies across the supply chain to be realized. Firms that have invested in ERP technology such as SAP, Oracle, J. D. Edwards, Ariba, etc. want to leverage their return on this investment. Utilizing this type of technology to optimize global operations and to expand and link systems and applications across business units worldwide provides increased capability to establish and manage global supply chains. Growing participation by companies in buying and selling consortiums is also impacting global purchasing and supply chain activity. Such arrangements intensify the need to gain competitive advantage vs. competitors’ supply chains.
Global Supply Chain Objectives
Overall Objective of Global Supply Chains
Have in place the global supply chain configuration that results in meeting or exceeding worldwide customer (internal and/or external) expectations at the lowest strategic cost.
Specific Objectives and Expectations of Global Supply Chains
In general the objectives of global supply chains are the same as domestic supply chains. The main differences are the scope of the supply chain and the number and types of participants that may be present: Leverage spend (across business units and geographic boundaries); Align Incentives for integration of activities (buyers, suppliers, end-users) to support organizational goals and strategies; Optimize supply chain operations (no. of members, capabilities, costs); Reduce inventories across the chain; Reduce all costs (item costs and supply chain operational costs); Assurance of supp