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Chapter 11

Global Supply Chain Procurement and Distribution

Russell and Taylor

Operations and Supply Chain Management, 8th Edition

Lecture Outline

Procurement – Slide 4

E-Procurement – Slide 7

Distribution – Slide 11

Transportation – Slide 18

The Global Supply Chain – Slide 23

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Learning Objectives

Discuss outsourcing as a strategic decision

Explain the basic elements of procurement, e-procurement and spend analysis

Describe distribution strategies, systems and processes

Assess the advantages and disadvantages of different modes of transportation

Discuss issues and trends in the global supply chain

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Procurement

The purchase of goods and services from suppliers

Cross enterprise teams

coordinate processes between a company and its supplier

On-demand (direct-response) delivery

requires the supplier to deliver goods when demanded by the customer

Continuous replenishment

supplying orders in a short period of time according to a predetermined schedule

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Outsourcing

Sourcing

selection of suppliers

Outsourcing

purchase of goods and services from an outside supplier

Core competencies

what a company does best

Single sourcing

a company purchases goods and services from only a few (or one) suppliers

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Categories of Goods and Services

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E-Procurement

Direct purchase from suppliers over the Internet, by using software packages or through e-marketplaces, e-hubs, and trading exchanges

Can streamline and speed up the purchase order and transaction process

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E-Procurement

What can companies buy over the Internet?

Manufacturing inputs

the raw materials and components that go directly into the production process of the product

Operating inputs

maintenance, repair, and operation goods and services

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E-Procurement

E-marketplaces (e-hubs)

Websites where companies and suppliers conduct business-to-business activities

Reverse auction

process used by e-marketplaces for buyers to purchase items; company posts orders on the internet for suppliers to bid on

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Spend Analysis

Formal process to analyze spending data

Reduce procurement costs

Improve procurement process efficiency

Reduce number of suppliers

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Distribution

Encompasses all channels, processes, and functions, including warehousing and transportation, that a product passes through on its way to final customer

Order fulfillment

process of ensuring on-time delivery of an order

Logistics

transportation and distribution of goods and services

Driving force today is speed

Particularly important for Internet dot-coms

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Amazon.com Order Fulfillment

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Distribution Centers (DC) and Warehousing

Receive, handle, store, package and ship products

DCs are some of the largest business facilities in the United States

Trend is for more frequent orders in smaller quantities

Flow-through facilities and automated material handling

Postponement

final assembly and product configuration may be done at the DC

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Warehouse Management Systems

Automated system that runs day-to-day operations of a DC

Controls item putaway, picking, packing, and shipping

Features

transportation management

order management

yard management

labor management

warehouse optimization

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A WMS

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Vendor-Managed Inventory

SMI – Supplier Managed Inventory

Manufacturers, rather than vendors, generate orders

Stocking information is accessed using EDI

A first step towards supply chain collaboration

Increased speed, reduced errors, and improved service

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Collaborative Logistics and Distribution Outsourcing

Collaborative planning, forecasting, and replenishment create greater economies of scale

Internet-based exchange of data and information

Significant decrease in inventory levels and costs and more efficient logistics

Companies focus on core competencies

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Transportation

Rail

low-value, high-density, bulk products, raw materials, intermodal containers

not as economical for small loads, slower, less flexible than trucking

Trucking

main mode of freight transport in U.S.

small loads, point-to-point service, flexible

More reliable, less damage than rails; more expensive than rails for long distance

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Transportation

Air

most expensive and fastest, mode of freight transport

lightweight, small packages <500 lbs

high-value, perishable and critical goods

less theft

Package carriers

small packages

fast and reliable

increased with e-Business

primary shipping mode for Internet companies

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Transportation

Water

low-cost shipping mode

primary means of international shipping

U.S. waterways

slowest shipping mode

Intermodal

combines several modes of shipping-truck, water and rail

key component is containers

Pipeline

transport oil and products in liquid form

high capital cost, economical use

long life and low operating cost

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Transportation Modes

Internet Transportation Exchanges

Bring together shippers and carriers

Initial contact, negotiations, auctions

Examples

www.nte.com

www.freightquote.com

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Global Supply Chain

International trade barriers have fallen

New trade agreements

To compete globally requires an effective supply chain

Information technology is an “enabler” of global trade

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Obstacles to Global Chain Transactions

Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections

Ever-changing regulations that vary from country to country that govern the import and export of goods

Trade groups, tariffs, duties, and landing costs

Limited shipping modes and infrastructure

Differences in communication technology and availability

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Obstacles to Global Chain Transactions

Different business practices as well as language barriers

Government codes and reporting requirements that vary from country to country

Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies

Numerous security regulations and requirements

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Duties and Tariffs

Proliferation of trade agreements

Nations form trading groups

no tariffs or duties within group

charge uniform tariffs to nonmembers

Member nations have a competitive advantage within the group

Trade specialists

include freight forwarders, customs house brokers, export packers, and export management and trading companies

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Landed Cost

Total cost of producing, storing, and transporting a product to the site of consumption or another port

Value added tax (VAT)

an indirect tax assessed on the increase in value of a good at any stage of production process from raw material to final product

Clicker shock

occurs when an ordered is placed with a company that does not have the capability to calculate landed cost

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Web-based International Trade Logistic Systems

International trade logistics web-based software systems reduce obstacles to global trade

convert language and currency

provide information on tariffs, duties, and customs processes

attach appropriate weights, measurements, and unit prices to individual products ordered over the Web

incorporate transportation costs and conversion rates

calculate shipping costs online while a company enters an order

track global shipments

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Trends in Globalization for U.S. Companies

Two significant changes

passage of NAFTA

admission of China in WTO

Mexico

cheap labor and relatively short shipping time

China

cheaper labor and longer work week

lengthy shipping time

major supply chains have moved to China

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China’s Role in the Global Supply Chain

One of world’s premier sources of supply

Abundance of low-wage labor

World’s fastest growing market

Regulatory changes have liberalized its market

Increased exporting of higher technology products

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Models in Doing Business in China

Employ local third-party trading agents

Develop your own international procurement offices

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Challenges of Sourcing from China

Getting reliable information in more difficult than in the U.S.

Information technology is less advanced and sophisticated than in the U.S.

Difficult to establish cultural relationships

Work turnover rates among low-skilled workers is extremely high

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Reverse Globalization

Move sourcing back to western hemisphere

South America, Mexico, Caribbean

Reduce risks of

Rising foreign wage rates

Increasing raw material costs

Poor quality and long delivery times

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