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8/12/2019 Topic 5.7 International Supply Chain
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Topic 5.7: Supply Chain Logistics/International Operations
Dr Michael [email protected]
1
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Supply chain: describes the system of resourcesand processes from raw materials to the market
The value chain describes a similar internalperspective for a single company adding value
The value chain concerns the maximisation of
value Supply chain concerns management of the supply
system costs
Supply chain management Coordination of
materials, information, and funds from the initialraw material supplier to the ultimate customer
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The value chain links the value-creatingactivities involved in designing and bringing aproduct to market
Source: Download Route
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Value chain analysis also takes in upstream anddownstream activities
Source: Download Route
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Buyers/ CustomersSuppliers The Firm
Forward integrationBackward integration
Multipledistributionchannels
Multiplevendors
Should all firms be fully vertically integrated?
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Buyers/ CustomersSuppliers
The Firm
Forward integrationBackward integration
Multiple distributionchannels
Walkers Crisps
Flavourings
Farmers
PackagingManufacturers
TESCO
WH Smiths
Should Walkers be a vertically integrated firm ?
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Should a firm make or buy the component
parts that go into their final product?
The decision is based on Transaction Cost
Analysis (O E Williamson)Bounded rationality means that
knowledge is limited opportunism occurs
when new information emerges or there is
specificity
Costly contracts control opportunism
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Issues toconsider:
Control
Risk
Investment
Flexibility
Strategic
control
(produce
internally)
Low Control
(buy off theshelf)
Moderate
control (specialventure or
contract
arrangement)
Degree of strategic vulnerabil i ty
High Low
Potential for
competitive
advantageHigh
Low
Source: Gri ff in and Pustay (2010:516) on Queen and H ilmer (1994)
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Access to market pricing
Access to economies of scale Strategic flexibility in sourcing components
Open to new developments
Reduces coordination costs
Strategic alliances with
suppliers give benefits of
vertical integration
without the associatedorganizational problems
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Global
Reducing costs
Improving quality Access to new technology
Offset requirements
Presence in a foreignmarket
Domestic
Avoid problems of
different: language
culture
currency
tariffs
Few concerns about qualityand safety
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Domesticpurchasing
only
Foreignbuying
based on
need
Foreignbuying aspart of a
procurementstrategy
Integration ofglobal
procurement
strategy
Assign domestic buyers for foreign purchasingUse foreign subsidiaries or business agents
Establish international purchasing offices
Assign the responsibility for global sourcing to specific
business units
Integrate and coordinate worldwide sourcing
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Continual reevaluation of implementation status, requirements, andcapabilities
Select best suppliers, establish contract terms and conditions and builddesired relationship
Request/evaluate proposals from suppliers
Determine appropriate nature of buyer-supplier relationship
Identify and evaluate potential suppliers worldwide
Define scope of international purchasing effort
Evaluate operating and competitive environments
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Role of just-in time inventory (JIT)
Economize on inventory holding costs Speeds inventory turnover
Difficult to achieve over international distances
Drawback: no buffer stock
Role of organization
Organizational linkages more numerous and complex
Require a separate functional department
Role of IT and the internet
Track components across globe to an assembly plant
Electronic data interchange (EDI)
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Bounded rationality perfect market is
impossibleAvoids friction of transactions Search costs
Contracting costs
Coordination costs
Williamson gave three
dimensions of transaction costs Frequency
Uncertainty Specificity
Vertical integration reduces
risk by internalising the
employment contracts
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Lower costs
Disperse manufacturing to efficient locations
Accommodate local demands
Decentralize production
Respond to shifts on customer demand Time-based competition extremely important
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Centralisedmanufacturing
favoured
Decentralizedmanufacturing
favouredCountry factors
Differences in politics, eco.,culture
Trade barriers
Location externalities
Exchange rates
Substantial
Substantial
Important inindustry
Stable
Few
Few
Not important inindustry
Volatile
Technological factors
Fixed costs
Minimum efficient scale
Flexible manufacturingtechnology
High
High
Available
Low
Low
Not available
Product factorsValue-to-weight ratio
Serves universal needs
High
Yes
Low
No
How to read the table: from left (factors) to the preferred cell (high/lowetc.) and up to manufacturing style (centralised/decentralised)
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Optimum PEST
conditions
Externalities
Skilled labor pools
Supporting industries
Formal and informal
trade barriersExchange rate
Fixed costs
Minimum efficientscale
Flexiblemanufacturing (leanproduction)
Flexible machinecells
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Two product features affect decisions Value to weight ratio (Cement)
Product serves universal needs (Screws, Bolts)
Two basic strategies
Concentrating in a centralized location and serving
the world market (Coke, Microsoft)
Decentralizing them in various regional or nationallocations close to major markets (Nike)
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Initially, established where labour costs low
Later, important centres for design and finalassembly Dispersed centres of excellence are
consistent with a transnational Strategy
The upgrading of production capability is known asupward migration
Upward migration caused by pressures to: Improve cost structure
Customize product to meet customer demand
An increasing abundance of advanced factors of production
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Father Christmas is a purveyor of gifts to
children Suppliers include Sony, Apple and ToysRus
Father Christmas supplies parents whopurchase on behalf of their children
You have been appointedas the chief elf for vertical
integration
What is Father Christmas
core competency?
Where are the
opportunities for
vertical integration?
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Describe different dimensions of global
manufacturing strategy
Discuss factors important for making manufacturing
location strategies
Examine issues related to global supply chain
management
Explain how inventory management is a key
dimension of the global supply chain
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Download, print and read the article onSupply Chain Management (SCM) in the
tutorial folder
Download and print the accompanying
question paper
Bring both documents to the tutorial and
be prepared to discuss the issues.
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Download Route
Hill and Hernandez-Requejo (2011) Global Business Today
Chapter 14
Williamson O E (1981) The economics of organization: the
transaction cost approach in The American Journal ofSociology 87, 3, November 1981 pp548-577
Wynn-Williams M S (2009) Surfing the Global Tide. London:
Palgrave Macmillan