IE 5357 MANUFACTURING FACILITIES PLANNING & DESIGN
Facilities Planning in Global Supply Chain
Yang Zhang, Feri Afrinaldi, Hoyeol Kim, Pradeepkumar Sivakumar Department of Industrial Engineering Oct 24, 2013
Table of Contents
TABLE OF CONTENTS CONTENTS ........................... .............. .......................... ........................... ........................... .......................... ........................... ........................... .......................... ........................... ................. ... I LIST OF TABLES ..................................................................................................................................................II LIST OF FIGURES .............................................................................................................................................. III 1.
2.
3.
4.
INTRODUCTION ......................................................................................................................................... 1 1.1.
GLOBAL SUPPLY CHAIN ........................................................................ ........................................................................................................................................................ ................................................................................ 2
1.2.
EXAMPLE FOR FACILITIES PLANNING IN GLOBAL SUPPLY CHAIN . ...................................................................................3
MATERIAL MATERIAL HANDLING IN GLOBAL SUPPLY CHAIN .......................... ............. ........................... ........................... .......................... ....................... .......... 5 2.1.
TRANSPORTATION PROBLEM FORMULATION ........................................................................ .................................................................................................................... ............................................ 5
2.2.
SOLUTION ..................................................................... ........................................................................................................................................................ ......................................................................................................... ...................... 9
FACILITY FACILITY LOCATION LOCATION IN GLOBAL SUPPLY CHAIN .......................... ............. .......................... ........................... ........................... ........................ ........... 13 3.1.
GLOBAL FACILITY LOCATION DECISION ...................................................................... ........................................................................................................................... ..................................................... 13
3.2.
MULTIPLE FACILITIES LOCATION PROBLEMS .................................................................................................................... ................................................................................................................... 13
3.3.
EXAMPLE: MULTIPLE FACILITIES LOCATION PROBLEM .................................................................................................... ................................................................................................... 14
3.3.1.
Formulation .............................................................................. .......................................................................................................................................................... ............................................................................ 15
3.3.2.
Results..................................................................................................................................................................... ..................................................................................................................................................................... 16
CASE STUDY WAL-MART IN SOUTH AMERICA ............................................................................. 20 4.1.
INTRODUCTION ......................................................................... ............................................................................................................................................................ ......................................................................................... ...... 20
4.2.
THE ISSUE. ............................................................................................................... ........................................................................................................................................................................... ............................................................ 20
4.2.1.
Main Reasons.............................................. Reasons................................................................................................................................. ......................................................................................................... ...................... 21
4.2.2.
Factors to consider ............................................................................ ............................................................................................................................................ ................................................................ 22
4.2.3.
Issues in i n Global Supply Chain Management ....................................................................... ........................................................................................ ................. 23
4.3.
IMPLEMENTATION ................................................................................................ ............... 2 4 MPLEMENTATION OF A GOOD GLOBAL SUPPLY CHAIN.................................................................................
REFERENCE ....................................................................................................................................................... 26
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List of Tables Table 1. Transportation cost ($/unit) from manufacturing facilities to distribution centers ............. 8 Table 2. Capacity of manufacturing facilities .......................... ............ ........................... .......................... ........................... ........................... .......................... ................ ... 8 Table 3. Transportation cost ($/unit) from distribution distribut ion centers to wholesalers w holesalers ......................... ............ ....................... .......... 8 Table 4. Demand from wholesalers ........................... ............. ........................... .......................... .......................... ........................... ........................... .......................... .................. ..... 8 Table 5. Data for the example problem .......................... ............. .......................... ........................... ........................... .......................... ........................... ...................... ........ 15 Table 6. Decision variables........................... .............. .......................... ........................... ........................... .......................... ........................... ........................... .......................... ................. .... 15 Table 7. Summary of the results ................................................................................................................. 18
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List of Figures Figure 1. Global supply chain network ................................................................................................. 3 Figure 2. Illustration of the graph of a transportation problem .................................................... 6 Figure 3. Map illustrated the problem ................................................................................................. 7 Figure 4. Network model and decision variables of the example ................................................... 9 Figure 5. Optimum network diagram .................................................................................................. 11 Figure 6. Map illustrated the optimum solution. .............................................................................. 12 Figure 7. Current global network of the company ........................................................................... 14 Figure 8. Formulation in LINDO ...........................................................................................................17 Figure 9. Report of the optimal solution............................................................................................ 18 Figure 10. Proposed global network of the company ..................................................................... 19 Figure 11. Wal-Mart startup in Argentina (South American outlet) ............................................ 20 Figure 12. French competitor Carrefour ............................................................................................. 21 Figure 13. Example of well-equipped transportation mode in global supply chain ................. 23
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1. Introduction The increase in dependence on other countries for goods and services has helped to create a whole new kind of economy. This type of dependence among countries is known as economic globalization. It involves the development of technology, cross-border sales, production activities and exchange of information. All of these factors lead to an increase in rapid growth of marketization.
The development of economies on a global scale has led to development of regional economic zones. These zones can break the barriers for trading (Cohen & Huchzermeier, 1999). As a result, global supply chain has played a very important role in the growth of economic globalization. Global supply chain takes into account the information flow, cash flow and material flow in global economies.
One of the major contributors to the economy is the manufacturing industries which also include all the industries that are related to them. When we go into further detail in manufacturing industries, facilities planning for the industry plays a very important role. Major considerations involved in facilities planning includes location and layout, material handling, and facility system design.
This report covers a total of four aspects on facilities planning. These include an introduction to global supply chain, material handling system in global supply chain, facility location in global supply chain, and critique of a failure example in Wal-Mart in South America for global supply chain. Every aspect has been described in detail and an example has been attached with each topic for further understanding. The report includes a final conclusion based on the study about facilities planning in global supply chain.
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1.1.
Global supply chain
Definition
•
Supply Chain: “Supply Chain is a network involves in all individuals, organizations, resources, activities and technology for manufacturing, selling and delivering of a product, from the raw material to supplier, supplier to manufacturer, manufacture to seller, and seller to user.” (Wigmore, 2013)
•
Global Supply Chain: Global Supply Chain refers specifically to the chains of supply of raw materials and components of global production systems.
Meaning of Global Supply Chain
Global supply chain plays an important role in everyone’s life. Without global supply chain our lives would be totally different. For example, every single aspect in everyone’s life is related to global supply chain whether it is recreation, food or work. They are all successful beneficiaries of global supply chain.
Global supply chain involves all activities related to the product life cycle, right from the raw material extraction to the time when it reaches the customer. Global supply chain ensures that the product is manufactured better, faster and cheaper.
Evolution of supply chain
Supply chain has existed in our world since industrial revolution. At first, the supply chain had limited scope within a city or single community. Then with the development of transportation systems, supply chain grew broader and spread its roots more regionally within a country. It further expanded to a set of countries where all involved in the supply chain and as a result it turned international. Currently, the supply chain has extended worldwide and forms a link between multiple continents. Hence it is called global supply chain. Figure below describes the working of global supply chain. (Lee & Wilhelm, 2010).
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. Figure 1. Global supply chain network
Factors in Global Supply Chain
Since global supply chain’s has a worldwide scope, it consists of several continents and its reach spans over multiple countries. Therefore, many factors have an impact on global supply chain. These factors can be classified into four main parts such as: trading rules, governmental and financial issues, uncertainties and qualitative factors. The factors for each part consist of a number of details. With regard to trading rules, the factors involved are quotas, trading barriers and local country rules. Secondly, governmental and financial issues consist of tariffs, taxes, exchange rates, and transfer prices. Thirdly, regarding uncertainties in global supply chain, it involves political and economic situations and in further detail it includes government stability and exchange rate stability. Finally with regard to qualitative factors, it involves economic freedom and infrastructure.
1.2.
Example for facilities planning in global supply chain
Toyota is a global company involved with manufacturing of automobiles. They have benefited greatly from global supply chain. They have been able to reduce the manufacturing cost of a new vehicle by using the same parts in different kinds of automobile. A good example of this would be that of a braking pad. The braking pad is first manufactured in China and then shipped to
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Japan, Thailand, Indonesia and North America where it is finally assembled. The supply chain has a direct link with the facilities planning. In the case of the braking pad the choice of location(China) for manufacturing is chosen considering various factors which include cheap labor costs, trading rules, governmental issues and financial issues The reason for choosing China as one supplier of braking pad is considering and comparing of different available manufacturing plants factors, for example.
Toyota is also known to use global supply chain strategy to optimize their production. A good example of this is Thailand where it houses a big manufacturing base. Toyota made a giant investment for building the manufacturing facilities. However in 1997, Thailand was the first country to suffer from the economic crisis in Asia. Due to the economic crisis, the local demand for Toyota vehicles had dropped heavily. Toyota came up with a strategy to avert this crisis. The plant in Thailand changed their initial strategy and began exporting parts to New Zealand, Australia, South America and Africa. This change can be considered as change in material handling in facilities planning (Shuchman, 1998). By utilizing global supply chain, Toyota has been able to improve its facilities planning all over the world and benefit from this.
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2. Material handling in global supply chain This section discusses the third aspect of facility design, which is material handling system design, in the context of global supply chain. Since material handling is defined as handling any material at any time and any place (Turner, Mize, & Nazernetz, 2001) then material handling can be classified into (Turner, Mize, & Nazernetz, 2001): 1. Within-plant movement. 2. Outside-plant movement: transportation/distribution. The focus of this section is to discuss the second type of material handling. The objective is to introduce the application of operations research in optimizing the distribution/transportation system.
According to Murty (2005), the distribution or transportation problem is the first linear programming problem studied. The first author who studied this problem is Russian mathematician, L. V Kantorovitch. He wrote a book entitled Mathematical Methods in the Organization and Planning of Production in 1939. However, his work remained unknown until
1959. In the USA, F. L Hitchcock published a paper entitled “The Distribution of a Product from Several Sources to Numerous Localities” in the Journal of Mathematics and Physics, vol. 17, 1949. Hitchcock developed the algorithm to find the optimal primal solution of the transportation problem which is similar to the simplex algorithm developed by George B. Dantzig in 1949. In the same year, T. C Koopmans also published a paper entitled “Optimum Utilization of the Transportation System” in Econometrica, vol. 17, 1949. Koopmans developed an optimal criterion for a basic solution to the transportation problem in terms of the dual basic solution. The work of Kantorovitch and Koopmans in transportation problem is part of their effort for which they received the 1975 Nobel prizes in economics.
2.1.
Transportation problem formulation
The notation and formulation here follow Bazaraa, Jarvis, & Sherali (2005). Let’s define that there are several origins denoted as Oi , i = 1, 2, …, m and each origin has supply of si units.
5
These origins will send the commodity to destinations denoted as D j , j = 1, 2, … , m, and each destination requires d j units of the commodity. This is illustrated by Figure 2.
s1
si
sm
O1
D1
…
…
Oi
D j
…
…
Om
Dn
d 1
d j
d n
Figure 2. Illustration of the graph of a transportation problem (Bazaraa, Jarvis, & Sherali, 2005)
Now let xij be the number of commodities send from origin i to destination j and there is a cost, denoted as cij , for transporting one unit of commodity from origin i to destination j. Assuming that the total supply is more than or equal to the total demand, if the objective is to minimize total transportation cost then the model is the following.
m
n
Min. z = ∑∑ cij xij
(2.1)
i =1 j =1
subject to n
∑ xij
≤ si
∀i
(2.2)
= d j
∀ j
(2.3)
∀i, j
(2.4)
j =1 m
∑ xij i =1
xij ≥ 0
6
Equation (2.2) guarantees that the total number of commodities transported from origin i does not exceed the capacity of origin i and is called as capacity constraint. Equation (2.3) makes sure that the demand from destination j is satisfied. Equation (2.3) is called as the demand constraint. The last constraint, equation (2.4), is the non-negative constraint meaning that the minimum number of commodities that can be transported is zero (no commodity is transported). As an example let’s consider the following problem (Adjusted from Powell & Baker, 2009).
A paper company manufactures paper at three manufacturing facilities (Beijing, Chengdu and Nanning). Their products are shipped by truck to their distribution centers (Shanghai and Hong Kong). At the distribution centers, the products are repackaged and sent by sea to the wholesalers (Seoul, Ulsan, Osaka, Tokyo, and Sapporo). The following tables summarize the data that have been collected for this planning problem. The company needs help in determining material flow at the minimum possible cost.
Figure 3. Map illustrated the problem
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Table 1. Transportation cost ($/unit) from manufacturing facilities to distribution centers
(To) Distribution Center (From) Manufacturing
Shanghai
Hong Kong
Facility Beijing
$1.28
$1.36
Chengdu
$1.33
$1.38
Nanning
$1.68
$1.55
Table 2. Capacity of manufacturing facilities
Manufacturing facility
Capacity
Beijing
2,500
Chengdu
2,500
Nanning
2,500
Table 3. Transportation cost ($/unit) from distribution centers t o wholesalers
(To) Wholesaler (From) Distribution
Seoul
Ulsan
Osaka
Tokyo
Sapporo
Center Shanghai
$0.60
$0.42
$0.32
$0.44
$0.68
Hong Kong
$0.57
$0.30
$0.40
$0.38
$0.72
Table 4. Demand from wholesalers
Wholesaler Requirement
Seoul 1,200
Ulsan
Osaka
1,300
1,400
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Tokyo 1,500
Sapporo 1,600
2.2.
Solution
The network model and the decision variables are shown by Figure 4.
Figure 4. Network model and decision variables of the example
Legend
B = Beijing, C = Chengdu, N = Nanning, Sh = Shanghai, H = Hong Kong, Se = Seou l, U = Ulsan, O = Osaka, T = Tokyo, Sa = Sapporo
Therefore the transportation model of the example is given by the following, Min. z = 1.28 x11 + 1.36 x12 + 1.33 x 21 + 1.38 x 22 + 1.68 x31 + 1.55 x32 + 0.60 y11
+ 0.42 y12 + 0.32 y13 + 0.44 y14 + 0.68 y15 +
0.57 y 21
+ 0.30 y 22 + 0.40 y 23 + 0.38 y 24 + 0.72 y 25
(2.5)
subject to,
x11 + x12 ≤ 2500
(2.6)
x 21 + x 22 ≤ 2500
(2.7)
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x31 + x 32 ≤ 2500
(2.8)
y11 + y 21 = 1200
(2.9)
y12 + y 22 = 1300
(2.10)
y13 + y 23 = 1400
(2.11)
y14 + y 24 = 1500
(2.12)
y15 + y 25 = 1600
(2.13)
x11 + x 21 + x31 = y11 + y12 + y13 + y14 + y15
(2.14)
x12 + x 22 + x32 = y 21 + y 22 + y 23 + y 24 + y 25
(2.15)
xij , y jk ≥ 0
(2.16)
∀ij, jk
Equation (2.5) is the objective function and quantifies the total transportation cost. Equation (2.6), (2.7) and (2.8) guarantee that the quantity of paper sent from each manufacturing facility does not exceed the capacity of the facility. Equation (2.9), (2.10), (2.11), (2.12) and (2.13) make sure that the demands from the wholesalers are satisfied. Equation (2.14) and (2.15) means that the flows coming to are equal to the flows coming from a distribution center. Finally, equation (2.16) ensures that the flows are non-negative.
In order to find the optimum solution, Microsoft Excel Solver is used. The optimum solution is the following: z = $12,881.0, x11 = 2500, x12 = 0, x21 = 1700, x22 = 800, x31 = 0, x32 = 2000, y11 = 1200, y12 = 0, y13 = 1400, y14 = 0, y15 = 1600, y21 = 0, y22 = 1300, y23 = 0, y24 = 1500, y25 = 0.
This solution is illustrated by Figure 5 and 6.
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Figure 5. Optimum network diagram
Legend
B = Beijing, C = Chengdu, N = Nanning, Sh = Shanghai, H = Hong Kong, Se = Seou l, U = Ulsan, O = Osaka, T = Tokyo, Sa = Sapporo
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Figure 6. Map illustrated the optimum solution.
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3. Facility location in global supply chain 3.1.
Global facility location decision
In this section we will focus on facility location and discuss the location decision problems with respect to global supply chain. Global facility location analysis is a decision process by which a location for a production facility is derived in a global context (Schniederjans, 1992). The global facility location analysis is the most important decision analysis in establishing a global network (Schniederjans M. J., 1998). It enables organizations to access global markets, obtain access to sources of supply, and ensure sufficient capacity to meet customer demand over time as well as other reason (Martin, 2007).
3.2.
Multiple facilities location problems
Companies often need to configure two or more facilities in a global supply chain network at the same time. The possible configurations can be enormous, the problems we encounter can be complicated. The goal is to determine the number of facilities needed, the size of each facility, and the location of each facility in a global supply chain network. A number of methodologies have been developed to solve multiple location problems including linear programming, mixed integer programming, dynamic programming, simulation, etc. Major costs of designing multiple facilities in global supply chain network include: •
Fixed facility cost
•
Inventory costs
•
Transportation costs
•
Production costs
•
Other costs such as overhead
The linear programming method can be used to allocate demand in a global supply chain network. Mixed integer programming method can be utilized to choose optimal multiple facilities in a global supply chain network. The mixed integer programming methods applied to multiple facilities selection is discussed below:
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3.3.
Example: multiple facilities location problem
A company has three warehouses that serve four markets. The warehouses are located in Dubai, Jakarta, and Manila, respectively. Four market places – Mumbai, Bangkok, Hong Kong, and Seoul – are served by each warehouse as indicated in Figure 7. The managers in the company want to save operational costs including fixed facility costs and variable costs (e.g. transportation costs) by determining which warehouse(s) will be closed and which one(s) will stay open. By doing so, they also want to know what the minimum total costs of the configuration.
Figure 7. Current global network of the company
The information about fixed costs, variable costs, warehouse capacity, and market demand is given in Table 5. Each warehouse is responsible for transporting its product to the markets as needed. There is a transportation cost per unit shipped from warehouse to market per mile. Each
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warehouse has its own supply capacity annually and fixed facility costs. Each market has its annual demands to be met. Table 5. Data for the example problem
Fixed cost
Hong Kong
Mumbai
Seoul
Bangkok
Capacity
Jakarta
$2250
$8
$6
$10
$9
50
Dubai
$3250
$9
$12
$13
$7
75
Manila
$4200
$12
$9
$13
$6.5
100
45
25
28
30
Demand 3.3.1.
Formulation
In order to solve this problem, we need to formulate and define decision variables, objective function, and constraints as below. Decision variables
In this problem, two decision variables are needed: Xij (i.e. quantity transported from warehouse i to market j) and Yi (i.e. 1 if the warehouse i is open, otherwise it is 0). Xij is equal or larger than zero and nonnegative integer. Yi, on the other hand, is binary variable (i.e. 1 or 0). Table 6 shows the decision variables (Xij and Yi) defined for the problem. Table 6. Decision variables
Decision Variables
Open/Close (1 or 0)
Hong Kong
Mumbai
Seoul
Bangkok
Jakarta
Y1
X11
X12
X13
X14
Dubai
Y2
X21
X22
X23
X24
Manila
Y3
X31
X32
X33
X34
Objective function
The objective function for this problem is to minimize the total costs including fixed facility costs as well as variable costs. Hence, it can be defined in Equation (3.1) .
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= 8 11 + 6 12 + 10 13 + 9 14 + 9 21 + 12 22 + 13 23 + 7 24 + 12 31 + 9 32 + 13 33 + 6.5 34 + 22501 + 32502 + 42003
(3.1)
Constraints
The first four constraints are demand requirements from markets Equation (3.2), (3.3), (3.4), and (3.5). All demands should be satisfied fully. The second is a set of capacity constraints which ensures that the total supply to markets will not exceed the warehouse capacity Equation (3.6), (3.7), and (3.8). Equation (3.9) guarantees that the total number of warehouses to be open will not exceed the current number of warehouses available. Equation (3.10) shows that the number of product that can be shipped is positive integers. Finally, Equation (3.11) represents whether the warehouse is open or close. (3.2) (3.3) (3.4) (3.5) (3.6) (3.7) (3.8) (3.9) (3.10) (3.11)
11 + 21 + 31 = 45 12 + 22 + 32 = 25 13 + 23 + 33 = 28 14 + 24 + 34 = 30 11 + 12 + 13 + 14 ≤ 501 21 + 22 + 23 + 24 ≤ 752 31 + 32 + 33 + 34 ≤ 1003 1 + 2 + 3 ≤ 3 ≥ 0 ∈ {0,1} 3.3.2.
Results
In order to solve the problem as defined above, MIP (mixed integer programming) was used since there is a binary variable (i.e. Yi) in this model. The software LINDO (Linear, Interactive, and Discrete Optimizer) has been utilized for finding the optimal number of facilities as well as the minimum total costs satisfying constraints. Figure 8 represents the formulation equations including objective function, constraints, and decision variables.
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Figure 8. Formulation in LINDO
Figure 9 reports the result after solving the problem using LINDO. First, the warehouses in Jakarta and Manila will stay open but the warehouse in Dubai will be closed. The minimized total cost of this configuration is $7,579. The Hong Kong and Seoul markets will served by Jakarta. The markets from Mumbai, Seoul, and Bangkok will be served by Manila. The warehouse in Manila still has 22 units available for new orders after all the demands are satisfied. The summary of the results is presented in Table 7 as well. Based on the results, the managers can redesign the current global supply chain network by closing one warehouse and staying open the remaining two to save transportation costs and fixed facility cost. The proposed global network is illustrated in Figure 10.
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Figure 9. Report of the optimal solution
Table 7. Summary of the results
Jakarta
Open/Close HongKong (1 or 0) 45 1
Dubai
0
0
0
0
0
0
Manila
1
0
25
23
30
78/100
45
25
28
30
Demand
Mumbai
Seoul
Bangkok
0
5
0
Capacity used/Max. 50/50
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Figure 10. Proposed global network of the company
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4. Case Study 4.1.
Wal-Mart in South America
Introduction
Wal-Mart, one of America's chain hypermarkets, entered South America, in an attempt to capture shares of a lucrative market. It sought to bring a different shopping experience to other cultures and to make a lot of money in the process. According to the Brazilian Association of Supermarkets (known as Abras), Walmart Brazil had sales of $11.5 billion in 2011. The American company did not manage to beat the French giant Carrefour, which had $14 billion in sales the same year. Pão de Açúcar, which is also owned by a French company, is undeniably the market leader and had sales of $25.7 billion in 2011 (Silverman, 1999).
Figure 11. Wal-Mart startup in Argentina (South American outlet)
4.2.
The Issue
Wal-Mart, tried to enter the South American market by exporting their "Main Street USA"-type shop all over the world. Because of the nature of the supermarket industry in South America and cultural influences, they were not embracing American supermarkets, as Wal-Mart is not seeing the profits the company had hoped at the beginning of its venture.
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4.2.1. •
•
Main Reasons
Wal-Mart had to fight protests from suppliers for selling at prices below costs, a strategy that is not accepted nor regulated in South America. The retail trade market was characterized by small, specialized, owner-operated shops.
Figure 12. French competitor Carrefour
•
•
•
Competition from other European hypermarket chains has hindered Wal-Mart's success in Latin markets. Carrefour, a French hypermarket operator, and Dutch-owned Makro operate combined about 15 hypermarkets in Argentina. These European competitors are accustomed to dealing with cultural influences of foreign markets. By not understanding cross-cultural influences and not changing the format of their stores to fit cultural differences, Wal-Mart was unable to compete in foreign markets. South Americans spend about 33% of their income on food. Wal-Mart only controls 2.5% of their food expenditures but 16.5% of non-food expenditures, due to which people are tired of making a separate trip to Wal-Mart for non-food items, even those being sold at a lower price (Silverman, 1999).
Thus attention needs to be given to the factors that affect global supply chain. The example given above clearly states the mistakes that Wal-Mart made in establishing their markets overseas. Now let us take a more general look at the factors to consider, issues in global supply chain and how it can be overcome.
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4.2.2.
Factors to consider
There are many factors that play a very important role in global supply chain and they affect it either directly or indirectly. Each one may influence the supply chain in a big way. They are as shown below:
•
Product differences - Global Products - Market Trends - Balance between local tastes
•
Dealing with established competition, aggressive competitors
•
Costs - Local labor rates / International freight tariffs - Currency exchange rates
•
Customs Duty (Kant Rao, 1994) - Duty rates differ by commodity and level of assembly - Impact
of
General
Agreement
on
Tariffs
and
Organization(WTO): Changes over time •
Export Regulations & Local Content - Denied parties list / Export licenses - Local content requirement for government purchases
•
Time - Lead time /Cycle time /Transit time /Customs clearance
•
Taxes
•
Different infrastructure/ business environment
•
Distribution problems
•
Different equipment standards and cultural differences
•
Issues with foreign governments
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Trade(GATT)/
World
Trade
4.2.3.
Issues in Global Supply Chain Management
Global supply chain may have many advantages, but along with these come issues which hinder its benefits. Some of the important issues are as discussed below. •
The biggest issue of global supply chain management is the heavy investment of time, money, and resources needed to implement and overlook the supply chain.
•
The decision to outsource a production facility or call center lowers the cost of doing business for a company using global supply chain management, but the decision to outsource or not can lead to consumer backlash.
•
Inefficient and undersized transportation and distribution systems
Figure 13. Example of well-equipped transportation mode in global supply chain •
Market instability
•
Integrating the supply chain and choosing the correct suppliers is much more difficult than one can imagine.
•
Not only do companies have to strongly consider price and quality, but they also have to make sure that all the organizations are willing to cooperate to benefit the group.
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•
Managerial styles, objectives, and goals must have a strategic fit between all companies involved and power must be evenly distributed throughout the supply chain or the businesses will not benefit from the advantages of global supply chain management.
•
When entering the global market, businesses need to be aware that the gains may not be seen in the short term.
•
It may be many years before they start reaping the rewards of their efforts.
•
Another disadvantage is that they have to hire additional staff to help launch their companies in the global markets they expand into.
•
Companies usually have to modify their products and packaging to suit the local culture, preferences and language of the new market.
•
Travel expenses are sure to increase for the administrative staff, as they will now be expected to travel all over the world to oversee their business outlets in other countries.
•
Also, companies need to know the regulations and tax laws in foreign countries, which take time and money, and they may need to hire professionals in those countries to help with legal and financial issues. (Anderson, 2013)
4.3. •
Implementation of a good global supply chain Increased specialization causes shifting comparative advantages. Firms must respond by moving-up the value chain and perform in knowledge intensive segments. They must identify the separable links (R&D, manufacturing, and marketing) in the company’s global value chain. In the context of those links, they must determine the global location of the company’s competitive advantages, considering both economies of scale and scope. Determination of the level of transaction costs (e.g., cost of negotiation, cost of monitoring activities, and uncertainty resulting from contracts) between links in the global value chain, both internal and external need to be completed, and the lowest cost mode that provides the most value must be selected.
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•
Emerging economies are competing in both traditional and knowledge intensive segments (e.g. China in electronic equipment) Firms must develop specialized markets, product branding, and specialized knowledgeassets. They must determine the comparative advantages of countries (including the company’s home country) relative to each link in the value chain and to relevant transaction costs. Adequate flexibility in corporate decision is required with respect to organizational design so as to permit the company to respond to changes in both its competitive advantages and the comparative advantages of countries. Industries and firms must seize global opportunities. Firms must take advantage of greater modularity of production and more collaborative innovation policies
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