global logistics and risk management

McGraw-Hill/IrwinCopyright©2008byTheMcGraw-HillCompanies,Inc.Allrightsreserved.Chapter10GlobalLogisticsandRiskManagement10-2InternationalSupplyChainsInternationaldistributionsystemsManufacturingstilloccursdomestically,butdistributionandtypicallysomemarketingtakeplaceoverseas.InternationalsuppliersRawmaterialsandcomponentsarefurnishedbyforeignsuppliersFinalassemblyisperformeddomestically.Insomecases,thefinalproductisthenshippedtoforeignmarkets.OffshoremanufacturingProductistypicallysourcedandmanufacturedinasingleforeignlocationShippedbacktodomesticwarehousesforsaleanddistributionFullyintegratedglobalsupplychainProductsaresupplied,manufactured,anddistributedfromvariousfacilitieslocatedthroughouttheworld.10-3GlobalMarketForcesPressurescreatedbyforeigncompetitors,aswellastheopportunitiescreatedbyforeigncustomers.Presenceofforeigncompetitorsinhomemarketscanaffecttheirbusinesssignificantly.Muchofthedemandgrowthavailabletocompaniesisinforeignandemergingmarkets.Increasingdemandforproductsthroughouttheworldthroughtheglobalproliferationofinformation.10-4GlobalMarketForcesParticularmarketsoftenservetodrivetechnologicaladvancesinsomeareas.Companiesforcedtodevelopandenhanceleading-edgetechnologiesandproducts.Suchproductscanbeusedtoincreaseormaintainmarketpositioninotherareasorregionswherethemarketsarenotascompetitive10-5TechnologicalForcesRelatedtotheproductsVarioussubcomponentsandtechnologiesavailableindifferentregionsandlocationsSuccessfulfirmsneedtousetheseresourcesquicklyandeffectively.Locateresearch,design,andproductionfacilitiesclosetotheseregions.Frequentlycollaborate,resultinginthelocationofjointfacilitiesclosetooneofthepartners.Globallocationofresearch-and-developmentfacilitiesdrivenbytwomainreasons:Asproductcyclesshrink,locateresearchfacilitiesclosetomanufacturingfacilities.Specifictechnicalexpertisemaybeavailableincertainareasorregions10-6GlobalCostForcesOftendictategloballocationdecisionsCostsofcheaperunskilledlabormorethanoffsetbytheincreaseinothercostsassociatedwithoperatingfacilitiesinremotelocations.Insomecasescheaperlaborissufficientjustificationforoverseasmanufacturing.OtherglobalcostforceshavebecomemoresignificantCheaperskilledlaborisdrawinganincreasingnumberofcompaniesoverseas.10-7PoliticalandEconomicForcesExchangeratefluctuationRegionaltradeagreementsTariffsystemTradeprotectionmechanismsMoresubtleregulationsLocalcontentrequirementsVoluntaryexportrestrictionsGovernmentprocurementpolicies10-810.2RiskManagementOutsourcingandoffshoringimplythatthesupplychainisgeographicallymorediverseandhencemoreexposedtovariousrisks.Recenttrendstowardcostreduction,leanmanufacturingandjust-in-timeimplythatinaprogressivesupplychain,lowinventorylevelsaremaintained.Intheeventofanunforeseendisaster,adherencetothistypeofstrategycouldresultinashutdownofproductionlinesbecauseoflackofrawmaterialorpartsinventory.10-9SourcesofRisksFIGURE10-1:Risksourcesandtheircharacteristics10-10ManagingtheUnknown-UnknownInvestinredundancyIncreasevelocityinsensingandrespondingCreateanadaptivesupplychaincommunity10-11RedundancyRespondtounforeseeneventsCarefulanalysisofsupplychaintrade-offsExample:CPGcompanywith40facilitiesovertheworldInitialanalysisforreductionofcostby$40Mayearshutdown17ofitsexistingmanufacturingfacilitiesleave23plantsoperatingsatisfymarketdemandallovertheworld.10-12DecisionWasRiskyNewdesignleftnoplantinNorthAmericaorEuropeLongandvariablesupplyleadtimesHigherinventorylevels.RemainingmanufacturingfacilitiesinAsiaandLatinAmericafullyutilizedAnydisruptionofsupplyfromthesecountries,duetoepidemicsorgeopoliticalproblems,wouldmakeitimpossibletosatisfymanymarketareas.Howcanonedesignthesupplychaintakingintoaccountepidemicsorgeopoliticalproblemsthataredifficulttoquantify?Analyzethecosttrade-offs10-13Trade-OffsFIGURE10-2:Costtrade-offsinsupplychaindesign10-14AnalysisoftheTrade-OffsClosing17plantsandleaving23openwillminimizesupplychaincosts.Totalcostfunctionisquiteflataroundtheoptimalstrategy.Increasingthenumberofopenplantsfrom23to30facilitiesincreasestotalcostbylessthan$2.5Mincreasesredundancysignificantly.10-15SensingandRespondingSpeedinsensingandrespondingcanhelpthefirmovercomeunexpectedsupplyproblemsFailuretosensecouldleadto:FailuretorespondtochangesinthesupplychainCanforceacompanytoexitaspecificmarket10-16SensingandRespondingExampleDifferentresponsesofNokiaandEricssononafireatoneofthesupplier’sfacilitySupplierwasPhilipsSemiconductorsinAlbuquerque,NMNokia:ChangedproductdesigntosourcecomponentsfromalternatesuppliersForpartsthatcouldnotbesourcedfromelsewhere,workedwithPhilipstosourceitfromtheirplantsinChinaandNetherlandsAlldoneinaboutfivedays10-17SensingandRespondingExampleEricsson’sexperiencewasquitedifferentTook4weeksforthenewstoreachuppermanagementRealizedfiveweeksafterthefireregardingtheseverityofthesituation.Bythattime,thealternativesupplyofchipswasalreadytakenbyNokia.DevastatingimpactonEricsson$400MinpotentialsaleswaslostPartofthelosswascoveredbyinsuran