Washington State University



International Business 582: Global SCM Factors & TrendsInternational Marketing Management: Lecture 23[Speaker: Douglas Albertson]Slide #1Slide Title: WSU Online Title SlideTitle: Global SCM – Factors & TrendsCreator: Babu John MariadossSpeaker: Douglas Albertsononline.wsu.eduAudio:[Music]Slide #2Slide Title: SECTION 2 Development of Global Marketing StrategiesSECTION 2 Development of Global Marketing StrategiesModule 10: Managing the Global Supply ChainLecture: Global Supply Chain Management – Factors & TrendsAudio:In this lecture, we will talk about managing the global supply chain. Essentially, we are talking about how global marketing managers can manage their global marketing channels. As we all know from our basic marketing course, marketing channels create utility for customers. The major categories of the utilities provided by marketing channels are place utility, time utility, form utility and information utility. When we say place utility we are talking about making the product or service available in a location that is convenient to the customer while time utility is making the product available whenever it is desired by the customer. Form utility is making the product available in a processed, prepared form or in proper conditions that is ready to use by the customer. Information utility is the availability of answers to questions and general communication about useful product features and benefits. All these channel utilities are a source of competitive advantage and comprise an important element of the firm’s overall value proposition. In the rest of the slides, we will look at the changes, the challenges and strategic issues in developing and managing global supply chains.Slide #3Slide Title: INDUSTRY PERSPECTIVEOxford Instruments has a relatively large portfolio of products which are quite diverse in their applications. Is it a complex process of managing what goes on where and when in the supply chain of these products?OXFORD INSTRUMENTS PLC, UK.Audio:First, let’s get an industry perspective from Oxford Instruments based in the UK. Oxford Instruments has a relatively large portfolio of products that are quite diverse in their applications. How does Oxford Instruments go about managing the complex supply chain process? Let’s ask the representative from Oxford Instruments.Slide #4Slide Title: OXFORD INSTRUMENTS PLC, UKINDUSTRY PERSPECTIVEOXFORD INSTRUMENTS PLC, UK.[Video clip of an interview with a global marketer from Oxford Instruments, PLC]Audio:Each of the individual trading companies within Oxford Instruments is responsible for their own operational practices. During the development phase they will work with partners who supply products or components to our products and we will manage through the central resource to help them manage that where we can. We deal with a lot of supplies and very few of them are common to multiple businesses. So, the opportunity for centrally resourcing those things is very limited and the products are of such complexity that it is very difficult to do anything other than locally deliver them to teams. But we do develop and manufacture internationally so those teams tend to be co-located around the businesses that they are based in. We are currently putting a lot of work into strategic supply chain management, which is an initiative being led from the corporate level where we are helping to structure supply chains to take advantage of just in time delivery time principles and to minimize the time on the factory floor for components. Clearly this is related to minimizing cost and cash tied up in the business capital expenditure and so on as well as making sure that we control the quality of the goods, which is why we tend to manufacture. It is actually, manufacturing is actually a limited element of the cost of the product, but it is important in terms of our quality and the experience the customer has in using the product.Slide #5Slide Title The Changing Trends in Managing Supply ChainThe Changing Trends in Managing Supply ChainGlobal distributionChallenges of different legal, economic, cultural and technological environmentsElectronic information interchange between intermediariesAn important mechanism to service delivery and capture customer dataNew type of intermediariesInternet, Mobile Devices, Interactive TV etc.Audio:As we enter into the 21st century, we are seeing that the global economy is being reshaped by several radical changes that have been happening in the marketplace. The marketplace has become more global than it was before. This fragmentation of the global market is being seen everywhere, in different sectors, in different industries. On the other hand, customers are also changing. Customers are asking to be treated much more differentially and more individually. They are asking for smaller quantities and they are asking for more customized products. As an answer to consumer demand, organizations also have a wider product category range. They innovate often, much more often than before. Several new products are coming into the market and firms are also starting to focus on small niche markets. Therefore we are actually looking at several changes because we are on the cusp of the information age. These changes are also ushering us into several new and more exciting challenges. The changes in the global competitive and technological environments are transforming the way global firms are producing the products. Firms are globalizing their manufacturing and procurement activities to dispersed locations so that they could gain competitive advantage in the specialization of production resources or activities to leverage more value from their upstream as well as downstream supply chains.As a result, they are having to substantially reorganize their distribution activities and their links to distribution specialists such as freight forwarders, wholesalers and agents. One of the biggest opportunities and challenges facing businesses today is the deployment of web-enabled technologies. The use of electronic information interchanges between intermediaries and e-commerce opens up fresh sources of revenue and opportunities for firms that have carefully structured strategies. And electronic information exchange have become an important mechanism to service delivery as well as capturing customer data. For example, businesses today can take advantage of technology such as global positioning system and radio-frequency ID tags, and internet communication networks. However, these new type of intermediaries such as internet, mobile devices, interactive TV have in a way helped global firms better manage their supply chain. As companies extend their supply bases and manufacturing operations globally, even the best managed supply chains still face unexpected challenges including intellectual property theft, supplier variability, volatile exchange rates, product safety and privacy.Slide #6Slide Title: Slide 6Influential Factors in International Supply Chain[Diagram of influential factors in international supply chain]Audio:While developing a global supply chain, global firms examine their value added activities visa vie the competitive advantages offered by markets in which they operate. Matching these activities and sourcing decisions with appropriate country conditions can help companies in terms of cost benefits, increased quality, delivery times and also better innovations.Several factors affecting global supply chain decisions have been identified by scholars in global supply chain management. For example, country characteristics is an important factor. Industry characteristics is also another category of factors. International supply chain strategy is another category of important factors that affect global supply chain decisions.Let’s look at country characteristics, endowment factor is very important under the country characteristics category. A country could be very good sourcing platform because of several endowment factors. Important ones are access to low cost labor or raw materials, availability of specialist skills and expertise, quality of infrastructure in that particular country, accessibility and reliability of telecommunications, ports, roads, ad ports, etcetera. Also important are the country’s demand and operating conditions. Cultural variations are an important factor. Variations in social patterns, cultural morals and working practices in particular countries can make setting up an effective supply chain a difficult task. Global firms can also use their own information systems to leverage and arbitrage the movement of material and location of activities so that they can minimize some of the difficulties in global supply chains, but also gain a competitive advantage in doing so. The last factor under country characteristics relates to the different incentives that governments may provide such as low import/export tariffs, tax refunds, low cost infrastructure, low cost land or free land or subsidized land so that their countries can become an effective sourcing platform. Global firms can benefit from these incentives by strategically locating their sourcing and distributing activities within these specific countries. In terms of industrial characteristics, labor content of product or the service matters very much. The greater the labor content, the more difficult it becomes to manage the process of production, quality control and therefore, higher costs involved. Scarcity is also a concern. The greater the scarcity of raw materials used for the product or service, the more the firms are forced to locate their sourcing and processing platforms close by to the source of raw materials so that transportation costs are minimized. The value and costs of components used in producing the product or service is also important. High value components need to be carefully managed, processed, and transported because any damage will lead to costly mistakes. The last factor under industrial characteristics is the perishability of the products. For example, meats and fresh flowers need a much shorter shelf life than non-perishable products such as paper or textiles. Therefore, the lead time needed for producing, packaging, and distribution of some of these products is distinctly shorter than other products.In terms of the international supply chain strategy of the global firm, the firm needs to consider the following factors if it needs to develop an effective supply chain. The first one relates to the nature of the markets. This involves understanding the rate of change, the growth rate and the relative size of the markets because a country with a substantial market size or potential for growth may demand local production or assembly facilities in order to effectively meet its domestic demand. Thus the nature of the market actually can decide what type of supply chain are you designing.In terms of infrastructure, it is pretty obvious that inadequate or lack of effective transportation infrastructure could seriously limit the success of a global supply chain. Therefore, several issues such as cost, accessibility, shipping patterns, reliability, service level, storage capacity, locations, and routing constraints have to be considered when considering transportation infrastructure. Firms can also use e-commerce and the latest technology in manufacturing so they gain economies of scale in R&D, processing, sourcing, distribution, and because technologies developed from these investments can be spread through their operations globally. And the last factor in this category is about financial management. A global supply chain can actually hedge for turbulent international conditions, which means that by having suppliers spread across several regions, a global firm can actually take advantage of the exchange rate volatilities and manage the flow between the different countries based on how the currency values fluctuate. So, basically what firms are doing here is that they are rationalizing the supply chain so that they can reduce costs by managing the transit prices of the products between these firms at different countries and therefore effectively hedge against currency fluctuations. ................
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