Module 4 GLOBAL DIMENSIONS OF SUPPLY CHAIN

Learning Objective Identify the importance of logistics system in the globalization Examine the impact of the globalization towards supply chain management Discuss the keys to the global logistics excellence

INTRODUCTION Many leading business organizations looking beyond horizon by creating opportunity to connect companies across the globe and to link with advance of information technology systems on a 24/7 basis. The effort taken enables the companies to collaborate horizontally and vertically in supply chain in the virtual boundaries. The involvement of organization in international market are through activities such as purchasing inputs for production, importing, exporting, joint ventures, alliances, foreign subsidiaries and divisions, and other means. The relevance of a global perspective on business operations is evident as now days every introduction to a major or minor text on managerial issues highlights the new challenges and risks of the globalizing world economy. As globalization is evolving, all corporate activities have to cope with the influence a well as the opportunities that arise from it. In this chapter, we will focus on the implication for business logistics and especially consider the impact on supply chain management.

THE SCOPE AND MAGNITUDE OF GLOBAL BUSINESS New markets are emerging up and existing markets are expanding their businesses worldwide. A global financial network has developed that allows multinational enterprises to expand their operations.1 Addition to this, the acquisitions of source of raw materials and new materials from other countries through global sourcing initiative have taken place. In this section, we will examine the impact of the globalization towards supply chain management. As the globalization appears everywhere, it is highly disputed of globalization is something originally as it is commonly employed synonymously for internationalization and internationalization processes and international trade have ever since occurred in world business.2 Peter Dicken, a pioneer in globalization literature, observes:3 The internationalization of economics activities is nothing new. Some commodities have had an international character for centuries; an obvious example being the long established trading patterns in spices and other exotic goods. Meanwhile, the differences between internationalization and globalization, as per Peter Dicken, define:4 Internalization processes involve the simple extension of economics activities across national boundaries. It is essentially a quantitative process which leads to a more extensive geographical pattern of economic activity. Globalization processes are qualitatively different from internationalization processes. They involve not merely the geographical extension of economics activities across national boundaries but also and more importantly the functional integration of such internationally dispersed activities. Undeniably, the supply chain and production chains have transforms to more international and increasingly integrate and more interdependent than in before years. The intense competition at international level among other international peers produced new alternative of optimizing the production and supply chains.

Douglas M. Lambert, James R. Stock, and Lisa M. Ellram, Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, 1998 Chapter 11 2 Werner Delfmann and Sascha Albers, Supply Chain Management in the Global Context, Department of General Management, Business Planning and Logistics of the University of Cologne, Cologne, 2000, pp. 16 3 rd Dicken, Peter: Global Shift. Transforming the World Economy, 3 Ed., London; Thousand Oaks, New Delhi: Paul Chapman, 1998, pp.1 4 rd Dicken, Peter: Global Shift. Transforming the World Economy, 3 Ed., London; Thousand Oaks, New Delhi: Paul Chapman, 1998, pp.5

This dimension becomes the driving force of global supply chain management as illustrate in Figure 4-1.

Figure 4-1: Globalization drivers Source: Werner Delfmann and Sascha Albers, Supply Chain Management in the Global Context, Department of General Management, Business Planning and Logistics of the University of Cologne, Cologne, 2000, pp. 16

The expansion of global industry is one of the most important business developments has taken place in recent years. Table 4-1, identifies the worlds largest industrial corporations. The companies may be headquartered in Asia, Europe, or North America, but their markets are international in scope.5

Douglas M. Lambert, James R. Stock, and Lisa M. Ellram, Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, 1998 Chapter 11

Table 4-1: World Largest Corporation, 2011

Global 500
Revenues ($ millions) 421,849 378,152 354,674 308,928 273,422 240,192 226,294 221,760 203,958 196,337 Profits ($ millions) 16,389 20,127 30,460 -3,719 7,629 14,367 4,556 4,766 4,891 19,024

Rank 1 2 3 4 5 6 7 8 9 10

Company Wal-Mart Stores Royal Dutch Shell Exxon Mobil BP Sinopec Group China National Petroleum State Grid Toyota Motor Japan Post Holdings Chevron

Source:http://money.cnn.com/magazines/fortune/global500/2011/full_list/

Other companies with more revenue generated from international markets include Coca-Cola, Boeing, Exxon, Citicorp and IBM. Many factors can influence a companys decision to enter international markets. These include:6 Market potential Geographic diversification Excess production capacity and the advantage of a low-cost position due to experience-curve economies and economies of scale

Douglas M. Lambert, James R. Stock, and Lisa M. Ellram, Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, 1998 Chapter 11

 Products near the end of their life cycle in the domestic market could generate growth in the international market Source of new products and ideas Foreign competition in the domestic market Sometimes the availability of the raw materials and component parts are additional reason for a firm to enter international market. For example, some raw material, such as petroleum, bauxite, uranium, certain foodstuffs, are found only in certain geographic regions.7 For this reason, a firm will locate a facility overseas or import directly a product for domestic usage and thereby become international in scope.

KEYS TO GLOBAL LOGISTICS EXCELLENCE Global integration goes beyond worldwide presence to provide the visibility and control needed to respond rapidly to global market dynamics and achieve the highest level of operating efficiency and cost effectiveness. Globalization of the world economy and our supply chains has advanced at an almost unbelievable speed. Growth in world trade, and corresponding cargo container movements continues to substantially exceed overall economic growths, meaning that trade volumes are doubling every five to seven years.8 While the best practices in global supply chain is being redefined on a continuous basis, the Supply Chain Digest has identified 10 capabilities, encompassing processes, skill sets and technology, that companies striving to achieve global logistics excellence must develop. They are detailed below:9 1. Total delivered cost management 2. Global logistics process automation 3. End-to-end visibility 4. Supplier portals and ASN capabilities 5. Total product identification and regulatory compliance 6. Dynamic routing 7. Variability management 8. Integrated international and domestics workflow 9. Integrated planning and execution platform 10.Financial supply chain management

Douglas M. Lambert, James R. Stock, and Lisa M. Ellram, Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, 1998 Chapter 11 8 The 10 Keys to Global Logistics Excellence, Supply Chain Digest, pp.1, http://www.SCdigest.com/assets/Reps/SCDigest_Global_Logistics_Excellence.pdf 9 Ibid, pp.5

1. Total Delivered Cost Management Total Delivered Cost Management involves the ability to analyze andpredict the total supply chain costsfrom the source of supply to its finalpoint of distribution. It includes thecapability to roll up both internationaland domestic logistics costs by productand delivery route, plus the ability toaccurately calculate all the applicableduties, tariffs and other customs-relatedcosts while factoring in anypreferential trade agreements. Moreadvanced capabilities would includethe ability to model and estimateinventory levels and total carryingcosts.This level of capabilities, empoweredby automated total cost softwareengines, is simply required to makeoptimal sourcing and logisticsdecisions, and to ensure thatexecution is aligned with upstreamsourcing decisions. One key metric:how accurate are the actual deliveredcosts versus expectations? Manycompanies experience high levels ofvariance, while capability leaders haverelatively trivial variances month tomonth.

Figure 4-2: Managing total delivered cost: comparison between high performer and low performer. Source: http://www.SCdigest.com/assets/Reps/SCDigest_Global_Logistics_Excellence.pdf 2. Global Logistics Process Automation In general, few companies have wellautomated global logistics processes.As a result, there are still manymanual steps in most organizations.Logistics personnel commonly spendtoo much time on low value activitiesneeded to get the freight to move, andnot enough time on developing betterplans and approaches to drivecontinuous improvement.At the most basic level, we often hearcompanies refer to this as the oceanbooking problem the laboriousprocess of simply identifying andtransacting international moves. 7

But it is also much more than that.The reality is that global logisticsexecution is simply much morecomplex than domestic transportation.Execution requires dozens of links; bymany estimates, there can be as manyas 25-30 hand-off points within acomplex global move, involvingmultiple parties with greatly varyinglevels of technology. Importers and exporters do, however,have control of their own technologydecisions. For a variety of reasons,automation of global logistics planningand execution processes is well behindmost other areas of supply chain andlogistics management. In some cases,existing ERP or logistics systemssimply have not been architected towell-support offshoring strategies andglobal logistics requirements, leavingcompanies at a dead end.Global logistics leaders have deployedtechnology that greatly automatesmany of these manual bookingprocesses, managing globaltransportation carriers, rates, andexecution in a single environment.The ultimate goal in global logisticsexecution: one touch informationflow for all activities. 3. End-to-end Visibility Global supplychain visibility and event notificationhave gone from being somewhatvague concepts to emerging as keyoperational goals of nearly everycompany that does business globally. What is global supply chain visibility?It starts with the ability to answer verybasic questions: Where is it? Whenwill it arrive? Is the expected datedifferent from the planned date?Event management/notification plays akey role, since the amount of datagenerated means that the onlymanageable approach is to havesystems that proactively identifyexceptions to the plan. In their mostbasic form, visibility tools enable acompany to define a schedule for all ofthe activities within a particular move,with configurable tolerances. If anactivity or milestone is not completedwithin the scheduled time, or noinformation is received when expected,an alert is sent via any of numerousmechanisms (email, page, etc.)notifying both the impacted party (e.g.the importer) and others (e.g., afreight forwarder) of the problem. Visibility systems should make it easyto find and drill down on informationfrom many points of reference, suchas the purchase order number, SKU,freight bill, etc. Users should then beable to easily see the relatedinformation. Visibility systems shouldalso facilitate the development ofrole specific systemconfigurations to meet theinformation needs of managers intransportation, purchasing, inventorymanagement, and other areas of thebusiness. In a global logistics visibility system,the timeliness and accuracy ofinformation is critical. While there isno magic bullet that can solve all thedata quality issues, global logisticsleaders are using a variety ofmechanisms, such as direct EDIintegration with ocean carriers, andweb portals for other serviceproviders, to achieve high levels ofnear real-time visibility, datatimeliness and accuracy. Leaders arealso monitoring incoming data forpotential quality issues, such assyntax errors or missing information.

Facilities and touch points under director indirect control should also utilizebar code scanning (and perhaps soonRFID) to generate status updates onshipments and inventory, improvingboth data accuracy and timeliness.By deploying a robust, realtimevisibility system, a company like hightech giant Cisco is able to operate atotally outsourced global supply chainwith a relatively small corporate staff,and manage performance as if thefunctions were all handled internally. At the advanced end of global supplychain capabilities, companies aretaking event notification to the nextlevel. For example, they are look atpotential shipping delays not only froma pure logistics perspective, but also inthe context of how the delay mightimpact production inventory levels, ormerchandising or promotional plans. While all exceptions need to bemonitored, some are more importantthan others in terms of the impact onthe rest of the organization. Lookingacross areas to understand the impactwill reduce overhead costs and betteralign logistics with the business.Global logistics execution is complex it requires an advanced trafficcontrol capability in the form of real-timevisibility to avoid congestion andensure the smooth flow of goods. 4. Supplier Portals and ASN Capabilities Integration with offshore suppliers canbe challenging, but it is essential tomanaging the global supply chain.Even companies that have achievedsignificant visibility for goods movingfrom foreign ports to domestic plantsand distribution centers are oftenfrustrated by the lack of visibility tothe actual status of orders in theoffshore factories.In addition, the ability to receivetimely, accurate Advance Ship Notices(ASNs) from overseas suppliers iscritical for both effective inventoryplanning and to streamline theinbound flow of goods. Most companies today are not wellintegrated with overseas suppliers,and many still receive informationabout what is on incoming shipmentsvia fax or other manual methods.Problems with the accuracy of thatinformation means that not until thecontainer is actually opened can whatwas shipped be completelydetermined.Many process, language, andrelationship barriers exist when tryingto better integrate offshore suppliers.Nonetheless, the availability today ofweb-based supplier portal technologyto improve integration and visibilitywith overseas (as well as domestic)suppliers means the opportunity toaddress these issues has never beeneasier.Many companies are providingsuppliers with webbased tools thatenable them to execute a growing listof processes, including: Purchase order acceptance Production status updates Quality checking Compliant bar code labeling of items and cartons Shipment routing ASN generation

In the future, this will likely includecapabilities to support encoding ofRFID tags as well.Global logistic leaders reduce the timeand cost of inbound processing byenabling their suppliers to produceASNs and properly label the goods.They also minimize inventory andstocks outs through better visibility toactual order status at offshoreproduction sites. 5. Total Product Identification and Regulatory Compliance Supply chain security concerns aregrowing, and are certain to increase.This is true both internal to companiesas well in response to efforts led bynational governments. In the U.S., avariety of mandatory and voluntaryprograms, such as import and exportrestrictions, Customs-TradePartnership Against Terrorism (CTPAT),Operation Safe Commerce, andmany others place an increasinglydifficult array of burdens in theexecution of global logistics. Not managing these potentialproblems: requirements wellleads to a series of real and

Fines or other penalties for a failure to comply Delays in the movement of goods inbound and outbound from a variety of causes, including problems with appropriate documentation and delays inherent for those not participating in programs like C-TPAT Risk to the companys brands should any problem with supply chain security emerge

One executive at a major specialtyretailer recently had this to say: Weare aggressive participants in allaspects of regulatory complianceand non-mandatory programs that canhelp us ensure the smooth flow ofgoods. I dont think many midsizedshippers realize the challenges theyare going to have getting the goodsinto the country before long if theyhave not made the same level ofcommitment, and it is going to causethem some pain. Global logistics leaders are taking anincreasingly aggressive approach tosecurity, both to improve the flow ofgoods in the short term as well asprotecting themselves from the impactof external threats and potentialproblems.Technology provides some of theanswer here, and will increasingly doso, especially as we enable completetrack and trace and other capabilitiesthrough RFID-based systems.Software that manages denied partyscreening and other regulatoryrequirements is already being used byhundreds of companies, and we expectadoption to continue rapidly in others. Global logistic leaders also embrace amindset that recognizes the securityand regulatory trends and how theywill impact their ability to moveproduct. A growing number ofcompanies understand the need for alevel of insurance that may not havean immediate payback, but whichultimately delivers huge value byprotecting the company and itsbrands.Savvy companies will be at the head ofthe line for both required andvoluntary compliance, and in makinginvestment in developing highly securesupply chains. 10

6. Dynamic Routing Many international logistics flows tendto be fairly static after they aredesigned. A shipment from say HongKong to a distribution center in Dallaswill use the same carriers into thesame inbound port for movement on aconsistent mode further inland. That isbeginning to change, however, forreasons related to both cost andagility/risk mitigation. Global logistics leaders are starting todevelop more dynamic routingcapabilities that will allow them torate shop for the most effectivecombination of carriers, routes andthird parties such as freight forwardersthat will meet delivery constraints, in afashion more consistent with howdomestic transportation is managed.An even bigger driver of dynamicrouting might be the increased supplychain agility it will provide. Forexample, should a given inbounddelivery be cross docked from aninbound DC to a series of regionaloutbound DCs, or would direct deliveryto a store or customer be the betterchoice for some of the inventory? While there are many variables toconsider before executing this specificinbound strategy, there are manyscenarios where having the flexibilityto dynamically determine inbound oroutbound routings will be beneficial.This may be especially true in the areaof mitigating risk. For example, if thelabor strife on west coast ports was torepeat itself, the ability to quickly andaccurately determine thetransportation alternatives and costswould be extremely valuable. Consider another scenario: acomponent supplier in Asia supplyingNorth American production plants hasa major problem, immediatelyreducing available output. The supplierin Easter Europe that produces forplants in that region can meet theneed, but how will the product move,and at what cost?With supply chain agility and riskmitigation at the top of most ChiefSupply Chain Officers priorities,having dynamic routing capabilities forglobal movements will be anincreasingly common attribute ofsupply chain leaders. 7. Variability Management Variability is the Achilles Heel of longsupply chains. As reported in SupplyChain Digest, preliminary work by TheLogistics Institute at Georgia Tech, forexample, showed there is a significantlevel of variability in internationallogistics moves, with a tremendousimpact on inventory levels andcustomer service (see illustration).

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Figure 4-3: Atlantic container transit time - International shipments inbound or outbound are subject to considerable variability in delivery times. Source: http://www.SCdigest.com/assets/Reps/SCDigest_Global_Logistics_Excellence.pdf For example, in the data shown in thechart, while the average transit timefrom a supplier in Livorno, Italy to theport of New York was only about 12days, it took four additional days oflead time, or a total of 16 days, toreach a level in which 90% of allshipments were received, and evenhigher for a 99% confidence level. Even at 16 days, thats a swing of33% in extra lead time versus theaverage, greatly contributing touncertainty, risk, and requiredinventory buffers. Global logistics leaders use supplychain data and performancemanagement systems to betterunderstand both the level of supplyvariability and the root causes of thatflux. They work hard to shrink totaldelivery lead times and the range ofthose lead time windows that are usedby inventory planners to determinesafety stock levels and purchase ordertiming. Reducing the variability byeven 1-2 days can drive millions ofdollars in inventory savings and reducelost sales due to stock outs. The capabilityto understand andimprove the long-term performance ofboth suppliers and logistics serviceproviders in terms of cycle times,timeliness, quality and accuracy iscentral to time compression, planningeffectiveness, and risk reduction.

8. Integrated International and Domestic Workflow 12

Most companieswere forced to manage the combinedinternational and subsequent domesticmoves really as separate processesfrom both a planning and executionperspective.There has been both an organizationalelement to this split, as well astechnology limitations. Functionalboundaries within organizations, forexample, contribute to this lack ofintegration between international anddomestic movements. The availability ofappropriate software has also beenlacking. Transportation ManagementSystem (TMS) suppliers have hadplenty to invest in just to improve theircapabilities for domestic transportationmanagement. There is also a largetechnical challenge of developing asoftware solution capable of modelinga complete, multi-leg, multi-modalinternational inbound throughdomestic routes. Until the past fewyears, the demand for this type ofcomprehensive solution has also beenlimited. All of which means there reallywerent solutions available capable ofend-to-end optimization.As a result, companies were forced totreat the international and domesticelements as separate point-to-pointmoves. This created extra effort,contributed to a somewhat siloedapproach to international and domesticlogistics, and eliminated opportunitiesfor reducing cost by a more completeoptimization. This is changing rapidly, driven bycustomer demand. While TMS vendorsstill have some work to do to fully linkinternational and domestic planningand execution, workable solutions donow exist, and expect rapidimprovement.In concert with these technologyimprovements and better internalunderstanding of the opportunities, expect the concept of the centralizedtransportation management, wellestablished in many companies on thedomestic side, to expand along withthe technology to embrace the fullspectrum of global and domestictransportation requirements. Thetechnology to do so is increasinglyavailable. 9. Integrated Planning and Execution Platform One of the challenges of globallogistics is that the information thatdecision-makers need tends to be inmultiple places, and is hard to access.While related to process automationand supply chain visibility, we believelogistics leaders are deployingtechnology that enables them to havea single work space that containsboth functionality and data across thefull international planning andexecution lifecycle. This integrated workspace is anchoredby the operational skill to secure andmaintain the information backbonewith the diverse data structures thatare needed by the various globallogistics processes.Many organizations still rely on manualsystems to manage internationalfreight movement, even on theexecution side, as we have discussedabove.As they advance into a moreintegrated environment, a globallyenabledtransportation managementsystem serves as the informationbackbone to the organization. Accessto common applications and dataprovides for an integrated workspacefor all stakeholders of product goodsdelivery. This means they have easyaccess to such information as: 13

Carrier and cost information, suchas rates, capacities, contractcommitments, etc. Movement schedules and shipmentdetails Related data, including costs,appointments, in-transit statusavailable to all Performance measures andreporting

Global logistics leaders are taking thiseven further by providing even moredynamic information and decisionsupporttools.Data becomes real-time forscheduling, intransit visibility andperformance measures of carriers.Transportation planners have a fullpicture of the total delivered costs ofthe integrated domestic andinternational legs.The powerful result: end-to-end,optimized global logistics controland cost minimization. 10. Financial Supply Chain Management It is often said that supply chainmanagement is about themanagement of materials, informationand cash. The reality is that in mostcompanies and most supply chainprocesses, the cash element of thisdefinition is not really connected. In global logistics, however, thefinancial supply chain can be muchmore directly linked with the physicaland information flows. Letters ofCredit, financial settlement processes,and other financial related capabilitiesmust often be mastered to expand thenetwork of potential trading partnerson both the buy and sell sides, as wellas to ensure the timely flow of goodsis not interrupted by issues withfinancial flows and relateddocumentation.While many companies havedeveloped internal skill sets aroundthese capabilities, we are beginning tosee solutions from software vendorsthat provide financial supply chaincapabilities and services, generallyassociated with modules for generatingimport and export documentation. Leveraging these capabilities,international product movements canbe designed to minimize tax and tariffimplications and take advantage oftrade preferential agreements withforeign countries. Global logisticsdecisions are then made based ongreater consideration of the financialsupply chain impact. Ultimately,transportation planning and executionfunctions are tightly linked withautomated financial approval andsettlement tasks. A more advanced area of FinancialSupply Chain Management relates todevelopment of a tax efficient supplychain. While beyond the scope of thisreport, total tax liability can besignificantly impacted by the countryfrom which a product is sourced,where and when value is added to theproduct, the physical flow of thegoods, and who takes ownershipwhen. As the total impact can besubstantial, supply chain leaders willconsider tax implications in the designand execution of their global supplychain strategies. Global logistics leaders will closely linkthe movement of cash and excellencein the Financial Supply Chain toexpand trading partner relationships,maximize profitability, and ensure theflow of goods is not disrupted. 14

Module concept mapping

GLOBAL DIMENSIONS OF SUPPLY CHAIN

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Questions and Problems 1. How far Malaysians forms are engaging themselves in the global supply chain? 2. Malaysia is taking many efforts attracting foreign investment. How ready Malaysia is in providing infrastructures and human resources to executing the global supply chain? 3. Discuss about the supply chain management in Halal industry. 4. Supply chain is one of the important factors in ensuring success in global business. What is your opinion? 5. Why do the companies enter into international markets?

Reading materials 1. Douglas M. Lambert, James R. Stock, Lisa M. Ellram, Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, 1998, Chapter 11 2. Werner Delfmann and Sascha Albers, Supply Chain Management in the Global Context, Department of General Management, Business Planning and Logistics of the University of Cologne, Cologne, 2000, pp. 16 3. Dicken, Peter: Global Shift. Transforming the World Economy, 3rd Ed., London; Thousand Oaks, New Delhi: Paul Chapman, 1998, pp.1& 5 4. The 10 Keys to Global Logistics Excellence, Supply Chain Digest, pp.1, http://www.SCdigest.com/assets/Reps/SCDigest_Global_Logistics_Excellence.pdf 5. Achieving World-Class Supply Chain Alignment: Benefits, Barriers, and Bridges. http://webster-old.engr.pitt.edu/freshman/academic/studyabroad/pdf/AchievingSCAlignment.pdf 6. NEM Part II 1 Malaysia Supply Chain, http://wwwneac.gov.my/files/1Malaysia_Supply_Chain.pdf 7. A Study of Supply Chain Management Practices: An Empirical Investigation on Consumer Goods Industry in Malaysia, http://wwwijbssnet.com/journals/Vol_2_No_17/23.pdf 8. A Review on Global Supply Chain Competitiveness, http://usm.academia.edu/HadiyanWijaya/Papers/135670/A_Review_on_Global_Sup ply_Chain_Competitiveness

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