Week 9: Global Supply Chain Management

Question 1

The basic career options in global supply

chains include its main functions of

Answer 1

Logistics, purchasing (sourcing),

production and operations management, and marketing channels

Question 2

SCM Institutions

Answer 2

• The Council of Supply Chain Management
Professionals (CSCMP)
• Association for Supply Chain Management (ASCM)

• Master Program:
UBC: Master of Science in Business Administration in
Transportation and Logistics (MSCB)
MIT Supply Chain Management Master’s Programs
Master of Supply Chain Analytics

Question 3

Global Supply Chain

Answer 3

Global Supply Chain

Question 4

In today’s global economy, firms must decide

Answer 4

• Where to locate productive activities
• What the long-term strategic role of foreign production sites should be

• Whether to own foreign production activities or
outsource those activities

• How to manage a globally dispersed supply chain and
what the role of Internet-based information technology
should be in the management of global logistics

• Whether to manage global logistics or outsource

Question 5

What Is SCM?

Wikipedia definition

Answer 5

In commerce, supply chain management (SCM), the management of the flow of goods and services, involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods as well as end to end order fulfilment from point of origin to point of consumption.

Question 6

What Is SCM?

Prof. David Simchi-Levi @ MIT

Answer 6

The system of suppliers, 
manufacturers,  transportation, 
distributors,  and  vendors  that 
exists to transform raw materials 
to final products and supply those 
products to customers.

Question 7

Supply Chain Management
(SCM) Definition

Amir’s definition

Answer 7

Managing a set of chains
(manufacturers, wholesalers,
retailers, distributors, etc.) to
match supply with demand.

Question 8

SCM, OM, & Logistics

Answer 8

SCM, OM, & Logistics

Question 9

Is SCM all about production?

Answer 9

SCM is not all about production

It can also include service (example matching demand at hospitals in Montreal)

Question 10

Strategy, Production, and Supply Chain Management 1

Answer 10

Production: activities involved in creating a product or
service

Supply chain management: the procurement and
physical transmission of material through the supply
chain, from suppliers to customers

• Purchasing: worldwide buying of raw material,
component parts, and products used in manufacturing the product or service.

• Logistics: plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing

Question 11

Strategy, Production, and Supply Chain Management 2

Answer 11

The strategic objectives of the production and logistics
function are:
• To lower costs
• To increase product quality by eliminating defective
products from the upstream and downstream supply
chain and manufacturing process
• Quality refers to reliability

The upstream from raw materials to the production facility (this is sometimes also called the inbound supply chain).

The downstream supply chain (e.g., wholesaler, retailer): from the production facility to the end-customer (this is also sometimes called the outbound
supply chain).

Question 12

The Relationship Between Quality Control and Costs

Answer 12

Look at Figure 15.1 (slide 28)

Hard to balance cost, time, scope / quality
-High quality = increase cost

Question 13

Strategy, Production, and Supply Chain Management 3

Answer 13

The Six Sigma quality improvement program aims to
reduce defects, boost productivity, eliminate waste,
and cut costs throughout a company

• Six Sigma is a direct descendant of total quality
management (TQM)
• First adopted by Japanese companies
• In addition, some countries have also promoted specific quality guidelines like the EU’s ISO 9000

Question 14

Strategy, Production, and Supply Chain Management 4

Answer 14

Two other objectives are important for international
companies:

1. Production and logistics functions must be able to
   accommodate demands for local responsiveness (the
   degree to which the company must customize their
   products and methods to meet conditions in other
   countries.)
2. Production and supply chain management must be able to respond quickly to shifts in customer demand

Question 15

Global Production

Answer 15

Global Production

Question 16

Make-or-Buy Decisions

Make or buy decisions

Answer 16

• Decisions about whether to perform a certain value
creation activity in-house or outsource it to another firm
are important to a firm’s manufacturing strategy

• Main factors in the decision are cost and production
capacity

Question 17

Where to Produce 1

Answer 17

Country Factors
• Location economies
• Formal and informal trade barriers
• Transportation costs
• Regulations affecting FDI (Foreign Direct Investment)
• Expected future movements in exchange rates

Question 18

Where to Produce 2

Answer 18

Technological Factors
• Fixed Costs
• If they are very high, a firm might serve the world market from a single location or from very few locations

Aim for break-even point

Question 19

What is the definition of breakeven point?

Answer 19

• F: fixed cost
• p: price per unit
• c: cost per unit
• x: number units

Breakeven point:
(p-c)x=F -> x=F/(p-c)

(20-10)x=1,000 -> x=100 units

Question 20

Where to Produce 2

Answer 20

Technological Factors
• Minimum Efficient Scale
• The larger the minimum efficient scale—the level of output at which most plant-level scale economies are exhausted—of a plant, the more likely centralized production makes sense

As in the case of low fixed costs, the advantages of a low minimum efficient scale include
allowing the firm to accommodate demands for local responsiveness or to hedge against
currency risk by manufacturing the same product in several locations.

Question 21

Where to Produce 3

Technological Factors continued

Answer 21

• Flexible Manufacturing

• Enable firms to produce a wide variety of end products at a unit cost that traditionally would require mass production of a standardized output
• Also known as lean production
• Reduce set up times for complex equipment
• Increase the utilization of individual machines through better scheduling
• Improve quality control at all stages of the manufacturing process

Question 22

Mass customization

Answer 22

The term mass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible: low cost and product customization. Flexible manufacturing
technologies vary in their sophistication and complexity.

One of the most famous examples of a flexible manufacturing technology, Toyota’s production system, has been credited with making Toyota the most efficient auto company in the world. Toyota’s flexible manufacturing system was developed by one
of the company’s engineers, Taiichi Ohno. After working at Toyota for five years and visiting Ford’s U.S. plants, Ohno became convinced that the mass production philosophy for making cars was flawed. He saw numerous problems with mass production.

Question 23

Lean Production

Answer 23

Lean production is an approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to
distribution.

From video: Kaizen, 1 car for every 1.6 man power
Made over 250 million vehicles

Question 24

Where to Produce 4

Technological Factors continued

Answer 24

• Flexible Manufacturing and Mass Customization continued

• Another common flexible manufacturing technology are the flexible machine cells: grouping of various types of machinery, a common materials handler, and a centralized cell controller
• Adopting flexible manufacturing technologies can help the firm to customize products to meet the demands of small customer groups in different national markets

Question 25

• Flexible Manufacturing and Mass Customization continued

Answer 25

Besides improving efficiency and lowering costs, flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups—at a cost that at one time could be achieved only by mass-producing a standardized output. Thus, the technologies help a company achieve mass customization, which increases its
customer responsiveness. Most important for international business, flexible
manufacturing technologies can help a firm customize products for different national
markets. The importance of this advantage cannot be overstated.

Thus, firms no longer need to establish manufacturing facilities in each major national
market to provide products that satisfy specific consumer tastes and preferences, part of
the rationale for a localization strategy.

Question 26

Where to Produce 5

Answer 26

Production Factors:
• Product Features
• Value-to-weight ratio
If the value-to-weight ratio is high, produce the product in a single location and export it. If the value-to-weight ratio is low, manufacture the product in multiple locations across the world.

• Universal needs
Universal needs are needs that are the same all over the world. If the product serves universal needs, the need for local responsiveness is reduced and concentrating production in an optimal location becomes attractive. Examples: Napkins, toilet paper

Question 27

Where to Produce 5

Answer 27

Production Factors
• Locating Production Facilities
• Centralized location
• Fixed costs are substantial
• The minimum efficient scale of production is high
• Flexible manufacturing technologies are available

• Decentralizing close to major markets
• Fixed costs and the minimum efficient scale of
production are low
• Appropriate flexible manufacturing technologies
are not available

Question 28

Where to Produce 6

Answer 28

Production Factors continued

• Strategic Roles for Production Facilities
• Multinationals trying to capture gains that come
with dispersed global production system

• Global learning: valuable knowledge may also be found in a company’s foreign subsidiaries

In essence, since the early 1990s, multinationals have opted to set up production facilities outside their home country 10 times for every 1 time they have opted to create such facilities at home.

Question 29

Where to Produce 7

Answer 29

Production Factors continued
Strategic Roles for Production Facilities continued

• Offshore factory: produces component parts or finished goods at a lower cost than producing them at home or in any other market
• Source factory: primary purpose is also to drive down costs in the global supply chain
• Server factory: linked into the global supply chain for a global firm to supply specific country or regional markets around the world
• Contributor factory: serves a specific country or world region
• Outpost factory: viewed as an intelligence–gathering unit
• Lead factory: creates new processes, products, and technologies to be used throughout the global firm in all parts of the world

Question 30

Where to Produce 8

Answer 30

The Hidden Costs of Foreign Locations
• High employee turnover
• Shoddy workmanship
• Poor product quality
• Low productivity  

Example: Microsoft in India with up to 40% turnover rate in 12 months

Question 31

Figure 15.3

Answer 31

Operationally Favoring a Make Decision

Exam is up until this coverage in theory, I call BS

Question 32

Figure 15.4

Answer 32

Operationally Favoring a Buy Decision

Question 33

Video 1: Different company, different SCM Amazon

Answer 33

Analyzing data for their billions of user to make predictive models

Question 34

Video 2: Different company, different SCM DHL

Answer 34

Purchase order manufacture system: allows consumers to see real time information about shipments across the globe

Question 35

Video 3: Did you know global supply chains are not just about transportation

Answer 35

Organize daily life into smaller pieces in sequential ways

Breaking down projects will make us focus, efficient and effective

They are totally value systems that work best when all linked are strategically leveraged

Question 36

Different than transportation Global supply chain @ Starbucks

Answer 36

Plan, source, make, deliver