Managing the Global Supply Chain

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1 Managing the Global Supply Chain Philip B. Schary Tage Skjett-Larsen Technlcche Universifat Darmstadt Facfrberoich 1 Betrlebswirtschaftliche Bibliothek Inventar-Nr.: Abstell-Nr.: HANDELSH0JSKOLENS FORLAG Distribution: Munksgaard International Publishers Ltd Copenhagen

2 Contents 1. The Concept of the Global Supply Chain International Business and the Supply Chain The Grand Design: Structuring the Global Supply Chain The Supply Organization The Supply Process The Procurement Process Distribution Management Transportation Systems for a European Market Management, Organization and Information Systems Strategy for the Global Supply Chain 301 Cases 331 References 363 Glossary of Logistics Terms 383 Subject Index 387

3 1. The Concept of the Global Supply Chain 15 Logistics and the Supply Chain 17 The Concept of the Supply Chain 20 The Basic Tasks of the Supply Chain 22 What Makes International Supply Different? 23 Different International Perspectives 24 The Complexity of the International Environment 28 The New Corporate Model 30 Setting Direction 32 Developing the Concept 32 The Organization of the Discussion 33 Concluding Comments International Business and the Supply Chain 37 Patterns of Trade 38 Defining the Scope of International Trade 38 Principles of International Trade 40 Crossing Borders 41 Trade and Preference Agreements 42 Economic Cooperation 43 Participation in World Markets 43 The Global Corporation 45 Local versus Integrated Organizations 47 The Role of the Local Subsidiary 48 A Framework for Corporate Strategy 49 A Dynamic View of Global Strategy 52 Organization of the Global Corporation 53 The Logistics Issues of International Marketing 56 The Issues of International Segmentation 56 Product Strategy 57 The Issue of Pricing 59 Distribution 59 Concluding Comments 61 Illustrative Cases 61 Haggar Corporation 61 Timberland The Grand Design: Structuring the Global Supply Chain 67 Strategy and Structure 69

4 The Structure of the Supply Chain 70 The Value System and the Supply Chain Concept 70 Separating Activities within the Supply Chain 72 Factors Within the Supply Chain 73 Geographic Factors 73 Economic Factors 74 Factors for Change 76 Links in the Supply Chain 77 The Organization of Production 78 Progression in Manufacturing Facilities 79 The International Influence 79 Production Factors 80 Evolution of Production 81 Operating Risk 82 Trade Restrictions 83 Limits on Global Industries 85 Distribution and Connecting Structure 86 Distribution and Production 86 Managing Time 87 Postponement and Speculation 88 Strategy for Structure 90 Two Perspectives 90 Concluding Comments 91 Illustrative Cases 91 The Japanese steel industry 91 Benetton The Supply Organization 95 Introduction 95 The New Paradigm 97 The Modular Company 99 The Strategic Core 100 The Network 101 Network Structures 103 Management Networks 104 Vertical Integration 107 Organizational Boundaries 108 Network Relations 111 Supplier Relations 112 Partnerships and Alliances 112

5 Cooperation and Integration 114 Governance 114 Boundary Management 116 Global Networks 117 The Path of Evolution 119 The Role of Logistics 121 Networks and the Integration of Supply 121 The New Roles of Logistics Management 121 Concluding Comments 123 Illustrative Cases 123 Benetton's Supplier Relationships 123 Supplier Development at Lucas Industries The Supply Process 129 Process Flow 129 Product Design 130 Product Issues 131 Product Structure 131 Other Factors 133 Logistics Issues 134 Production Strategy 136 Strategic Concepts 136 Product Life Cycle 136 Process Life Cycle 137 Product-Process Matrix 138 Characteristics of Production Networks 140 The Production Scheduling System 143 Long-range Production Planning 143 Intermediate-term Production Planning 145 Short-term Production Scheduling 147 Production Scheduling Methods 147 Materials Requirements Planning 147 Drum-Buffer-Rope 150 Just-in-time and Supplier Operations 151 The Just-in-time Concept 151 Industry Structure 152 Supplier Relations 153 Inventory 153 Communication 154 Just-in-time Management 154

6 Comparing Approaches 155 Concluding Comments 157 Illustrative Case 157 A Just-in-time Supply Relationship The Procurement Process 161 The International Supply System 162 The Objectives 162 Organizational Change 163 Four Phases 164 Lean Supply Model 165 Transforming Production 165 Procurement as Strategy 166 Supply versus Purchasing Management 166 Supplier Strategy 167 Supplier Relationships 170 Supply Networks 170 Exit or Voice Strategies 172 The Supplier Position 174 Single and Multiple Sourcing 175 Other Factors 177 The Proactive Role of Procurement 177 Procurement as Process 178 Make-or-Buy 178 The Role of Quality 179 International Issues 180 Organizing for International Purchasing 181 Source Selection 182 Subsidies and Taxes 182 Countertrade Purchasing 184 Currency Exchange Rates 185 Negotiation 187 Free Trade Zones 187 Concluding Comments 188 Illustrative Case 188 BMW and RHW - A Just-in-time Relationship Distribution Management 191 The Problems of Distribution 192 Links to the Supply Chain 192

7 International Markets 193 Global Marketing 195 The Institutional Framework 196 Changing Distribution 196 Demand Management 202 Order Acquisition and Processing 202 Forecasting 202 Changing Demand Patterns 204 The Distribution Process 204 Conventional Systems 205 The Question of Centralized Distribution 205 Distribution Requirements Planning 210 Quick Response/Effective Customer Response 212 Reverse Logistics 215 Reverse Logistics Chains 215 Packaging Recycling 217 Recycling of Waste Materials 217 Environmental Audits 218 Management Issues 219 Objectives and Tools 219 Concluding Comments 221 Illustrative Cases 222 Philips Electronics 222 Atlas Copco Tools 225 Bang & Olufsen 228 Digital Equipment Transportation Systems for a European Market 233 Introduction 233 The Scope of the Transport Industry 233 Major Changes 234 The Need for Infrastructure Investment 235 Deregulation of the Transport Market 236 Road Transport 237 Air Transport 238 Railways 238 Combined Transport 240 Water Transport 241 Transport and the Environment 242 The Structure of the Transport Industry in Europe 243

8 New Types of Transport Operators 243 Pan-European Transport Companies 244 Mega-carriers 245 Subcontractors 246 Niche Carriers 246 Third-party Logistics 247 Forces Driving Third-party Logistics 250 Obstacles to Outsourcing 251 Transportation Strategy 252 A Strategic Approach 252 Modal Choice 254 Modal Analysis 254 The Choice of Logistics Provider 257 Developing Third-party and other Carrier Relationships 259 Just-in-time Transportation 260 Concluding Comments 261 Illustrative Cases 262 Caterpillar Logistics Services 262 DFDS Transport and Olivetti 265 Federal Express and Laura Ashley 266 ValueLink Management, Organization and Information Systems 271 The Management Task 272 The Environment 272 The Organizational Setting 272 Logistics Functions 273 International Dimensions 275 The Changing World Market 276 Organizational Change 276 Technology 276 Objectives 277 Logistics Organization 279 Traditional Approaches 279 The Organizational Solution 280 Teams 282 The Logistics Information System 284 The Concept of System Design 284 The Global Logistics Information System 289 The Structure of the Information System 290

9 Electronic Data Interchange 292 Electronic Data Interchange Operations 294 Management Issues 296 The Role of Bar Coding 296 The New Organizational Paradigm 297 The Customer Order Point 298 Concluding Comments Strategy for the Global Supply Chain 301 The Strategic Role of the Supply Chain 302 Defining the Supply Chain 302 Characteristics of the Supply Chain 302 Effectiveness and the Market 304 The Corporate Role of Logistics Strategy 305 The Development of Strategy 309 Developing Structure 309 Location 310 Process 310 Organizational Networks 312 Partnerships and Alliances 313 Tools of Strategy 314 Asset Management 314 Postponement 315 The Time Dimension 317 The Role of Flexibility 321 Information and Organizational Design 323 The Global Economy and the Supply Chain 324 The Influence of the Global Economy 325 The Global Corporation 326 The Supply Chain in an International Context 327 Concluding Comments 329 Cases 331 Ikea 331 Coloplast 338 Lego 350

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