12-1
Chapter 12
Global Supply
Management
12-2
Key Concepts
•
Global Management Perspective
»
Future of Global Supply Management
»
Stages to Global Supply Management
»
Reasons for Global Sourcing
»
Potential Problems
»
Questions Before Going Global
•
Supply Channels
»
Global Trade Intermediaries
»
International Procurement Offices
12-3
Key Concepts
•
Direct Suppliers
»
Eliminating Intermediaries
»
Identifying Direct Suppliers
»
Qualifying Direct Suppliers
»
Preparing for Direct Relations
»
The Initial Meeting
•
Currency And Payment Issues
»
Exchange Rates
»
Payments
»
Letters of Credit
12-4
Key Concepts
•
Countertrade
»
Supply Management's Role
»
Creative Countertrade
•
Political And Economic Alliances
»
European Union
»
North American Free Trade Agreement
»
MERCOSUR
»
Association of Southeast Asian Nations
»
Asia Pacific Economic Cooperation
12-5
Quotes on Global Thought
•
“I am not Athenian nor a Greek, but a Citizen of
the world”
»
Socrates
•
“Operating in an increasingly interconnected
world, leading companies perceive competition
as global and are moving to implement an
integrated strategy worldwide. Global
competitors are learning to develop and
manufacture products that can be introduced and
marketed simultaneously in many countries. In
doing so, they are sourcing technology, materials,
and components from sites and suppliers located
throughout the world.”
»
Carl R. Frear, Lynn E. Metcalf, and Mary S. Alguire
12-6
Global Management Perspective
•
Future of Global Supply Management
•
Stages to Global Supply Management
•
Reasons for Global Sourcing
•
Potential Problems
•
Questions Before Going Global
12-7
Future of Global Supply Management
•
World financial markets are closely linked
through 24-hour trading
•
International business is no longer limited
to large multinational corporations
•
Fewer marketplace differences exist
»
“Westernization” of global consumer markets is
occurring at a rapid rate
•
Manufacturing firms in “developing”
countries have improved their capabilities
•
Productivity and quality is dramatically
improving worldwide
12-8
CAPS Study
•
“…much has happened to change the world of
business and supply management more to
come.
•
…the main reason for global sourcing is to
reduce costs.
•
…global sourcing resulting in cost reductions of
19% and a total cost-of-ownership reduction of
12%.
•
“China, India, Eastern Europe and Brazil will
continue to gain importance as sources of supply
over next five years…
•
…sourcing from U.S., Canadian and Western
European markets will decline.”
12-9
Stages to Global Supply Management
•
Stage One: International Purchasing
- Organizations focusing on leveraging
volumes.
•
Stage Two: Global Sourcing –
Organizations focused on global
opportunities.
•
Stage Three: Global Supply Management-
Organizations optimize supply networks.
12-10
Reasons for Global Purchasing
•
Superior Quality
•
Better Timeliness
•
Lower Total Costs
•
More Advanced Technology
•
Broader Supply Base
•
Expanded Customer Base
12-11
Potential Problems
•
Cultural Issues
•
Long lead times
•
Additional Inventories
•
Lower Quality
•
Social and Labor Problems
•
Higher Costs of Doing Business
•
High Opacity
12-12
Questions Before Going Global
•
Does it qualify as high-volume in your industry?
•
Does it have a long life (two to three years)?
•
Does it lend itself to repetitive manufacturing or
assembly?
•
Is demand for the product fairly stable?
•
Are specifications and drawings clear and well
defined?
•
Is technology not available domestically at a
competitive price and quality?
12-13
Supply Network Evaluation
•
Does sufficient engineering support exist to
efficiently facilitate ECOs when they occur?
•
Will the buyer be able to allow sufficient time to
phase out existing “in the pipeline" inventory?
•
Will the supply manager’s firm take the
responsibility?
•
Is the firm prepared to make a financial
commitment for expensive trips to the supplier?
•
Is management willing to change the approach of
how business and transactions are conducted?
•
Is the buyer aware of the environment?
12-14
Supply Channels
•
After deciding to source globally is to
decide what supply channels to use
•
The lowest price method for direct
procurement
»
May be infeasible due to total costs and limited
resources
•
Simplest way to source globally is through
the use of an intermediary
12-15
Global Trade Intermediaries
•
Import merchants
»
Easiest method
»
Basically like buying from a “domestic source”
•
Commission houses
»
Act for exporters abroad
»
Paid by the exporter
»
They do selling, shipping and customs details
•
Agents or reps
»
Same as Commission House
»
Except, they work for the exporter
12-16
Global Trade Intermediaries
•
Import brokers
»
Commission paid by sellers and buyers
»
Charges fee for bringing parties together
•
Trading companies
»
Perform all of the above
»
May work for both or one party
»
Selling, shipping, customs details
•
Subsidiaries
»
Facilitate international sales
»
Example: Hitachi Americas
12-17
International Procurement Offices
•
Expands buyer’s supplier base
•
Allows personal contact
•
Better understanding of local conditions
•
On-site support
•
Staffed by ex-patriates in the past, but not
necessarily true today
12-18
Direct Suppliers
•
Eliminating Intermediaries
•
Identifying Direct Suppliers
•
Qualifying Direct Suppliers
•
Preparing for Direct Relations
•
The Initial Meeting
12-19
Eliminating Intermediaries
•
Results in lowest purchase price
»
But, direct procurement requires extra cost
beyond price
•
Requires knowledge
»
Requires involvement of the company in all
aspects of the procurement
12-20
Identifying Direct Suppliers
•
Identify and contact key players at the supplier
•
Visit with the supplier's key personnel
•
Use the meeting to provide performance feedback
•
Explain your company's goals and values
•
Take care not to appear to be an unreasonable
•
Consider the timing of your request
•
If dealing with a new supplier, state your intention
to deal directly right from the start
•
Be prepared to give reasons for direct buying
12-21
Qualifying Direct Suppliers
•
Country and regional analysis
•
Financial condition
12-22
Preparing for Direct Relations
•
Cultural preparation
•
Interpreters
•
Technical and commercial analysis
»
Prepare and review specifications and drawings
»
Pack samples or photos of required materials if helpful
»
Clearly prepare the quality requirements
»
Identify specific scheduling requirements
»
Determine what % of production can be placed offshore
»
Determine requirements for special packaging
»
Identify likely lead times
»
Develop a clear idea of the price objective
12-23
Briefing on Your Firm for the Supplier
•
Information on the relevant product line
and related lines
•
Actual and forecasted sales volume
•
Customers
•
Market share
•
Unclassified corporate strategy
information
•
Annual reports
•
An indication of why the buying firm is
soliciting the potential global supplier's
interest (quality? price?)
12-24
The Initial Meeting
•
Provide a briefing on your firm
•
Provide a tour of your facility
»
If the initial meeting is at the supplier’s facility,
then tour the supplier’s facilities
•
Meet with critical personnel
•
Describe how and when the supplier’s firm
would get paid
•
Always remember that the potential
supplier is judging your firm at the same
time
12-25
Currency and Payment Issues
•
Preferred method of payment is after
receipt and inspection of the goods
•
It may be customary in many countries for
advance payments to be made prior to
commencing work
•
Letters of credit are common in global
commerce
•
Of particular importance are:
»
Exchange Rates
»
Payments