Effects of globalization on supply chain management

Executive Summery

This report evaluates and analyses the effects of globalization on supply chain management (SCM). on the other hand it depicts the reconfiguration of business Further more it reveals supply chain management with five different drivers and those are Production, Inventory, Location, Transportation and Information. Production is first driver in supply chain management which describe Dell production system. Second driver in supply chain management is Inventory, which has explained with the help of Hewlett Packard. Where as third driver in supply chain management is Location, which tells about Toyota, world wide manufacturing operation. Transportation is fourth driver, which discussed about FedEx. and last driver in supply chain management is Information, which has explained by Procter & Gamble.

1.GLOBALIZATION

“Globalization is defined as set of beliefs that foster a sense of connectivity interdependence and integration in the world community the towers of globalization are open trade and vital civil and legal institutions that uphold individual and group rights while facilitation social and economic integration”(Christopher, 2005). Globalization is a set up a world community that is prosperous and tolerant, and on process that enhances and strengthens global understanding and improves the quality and effectiveness of business, professional, and personal interactions through unrestricted access to world commodities, technology, and information.

“Globalization is not synonymous with trade volume and export profits, it is an orientation that seeks to enhance and strengthen global understanding and effective business, professional and personal interactions” (Larsen, 2007).

Naturally question arises in our mind what are the reasons for globalization?

A company explores global production for a variety of reasons. While there are costs associated with managing and operating a multinational organization, many companies pursue global production because it offers several benefits

(1-a) Access to cheaper labour and operation costs is one of the most common reasons for location production facilities overseas, labour rates vary considerably among nations. Therefore, for many specific types of production activities, it is cheaper for companies to produce overseas than to extend in their home countries. For many specific types of production activities, it is cheaper for companies to produce overseas than to expand in their home countries. For example, many manufacturing facilities have been set up in china and Bangladesh to take advantage of those countries, lower labour costs. Similarly, many telephone and internet-based customer support centres have been established in India during recent years of lower operating costs.

(1-b) Sometimes, companies locate their facilities in another country to get access to the knowledge and skills of people in that country. For example, many information technology-based operations have recently been established in several eastern European countries and in India because of the vast pool of highly skilled workers in those areas. It should be noted that access to knowledge and skill does not necessarily come at lower cost. Switzerland, Germany, and Japan are examples of countries where companies locate facility to get access to populations who are highly skilled in financial services, engineering and technology, even though the labour costs are higher.

(1-c) Yet another reason for globalization of industries involves access to resources, certain parts of the world are rich in natural resources. For example, many of the minerals-based in south American countries, which have some of the word’s largest mining industries.

(1-d) Globalization also allows companies access to new markets, by locating facilities in new countries firms can market their products and services to a new set of customers. Therefore, firms always look for growth opportunities abroad. For example, we can see the outlets of many well -known America brands. For examples McDonald’s, Marriott, and Star bucks around the world.

(1-e) Facilities at strategic international locations can also reduce logistics and distribution cost. A foreign location can become a hub for distribution of a firm’s products to markets in the neighbouring region. For example, apple, Sony, and other electronics producers operate distribution and warehousing facilities at various strategic locations in north America, Europe, Asia and the rest of the world.

(1-f) Sometimes firms locate their facilities internationally to take advantage of tax and financial incentives provided by local governments. To encourage development, many emerging nations have established “tax-free production zones” within their borders. The companies operating within these zones get significant tax rebates and access to cheaper capital. For example, the software development facilities of many international firms are located in SEEPZ,(Santacruz electronics export processing zone) Mumbai, India. because of very attractive tax incentives provided by the local government.

(1-g) Finally, firms also locate internationally for political and industry-specific reasons. For example, by locating a production facility in a country, providing employment, and participating in various community activities, a firm can slowly become “local” rather than stay a “foreign” entity. For example, Holden cars are commonly considered to be Australian, but they have been part of the general motors family since the 1920s.

(2)RECONFIGURE

Today, many multinational companies have reconfigured their supply chan. Their are many reasons behind this, such as advance ICT (information and communication technology), increased focus on market requirements, global rivalry, development in international fright transport system, global rivalry etc. Market requirements obliges the companies to reconfigure their supply chains and increased pressure on time to delivery requires organisation to be in close immediacy to their consumers, not necessarily in terms of physical distance, but in terms of time twenty four hours lead time demands world for example, such type of condition quite normal in several industries. so these conditions indicates that, organisation need to have reconfigure their distribution centres structure in order to meet requirements. In few industries, for example electronic and automobile industries, the focal company requires inventory close to the focal company’s assembly plants. on the other hand, organisation are moving their manufacturing plants to low-cost countries, in order to be more cost-efficient. Further more, global rivalry has forced the organisations to relocate their distribution centres and manufacturing operations in order to be both cost efficient and competitive. for example, most of the fashion and shoe industries have moved their manufacturing plant toward East. Regarding automobile industry, German car manufactures has step by step moved to south Africa, Czech republic, Hungary, Poland. logistics. Logistics postponement highlights that few regional distribution centre to single distribution centre to centralization of inventory, until the actual order received. full postponement is the delay of manufacturing until the order received and after the assembly process. At this stage, the finished goods are shipped by rapid distribution to the customers. The customized products are shipped directly to the customers.

“Postponement of production or logistics is a strategy, which can be achieve flexibility and rapid response when addressing changes demand. Production postponement means that modular components are produced according to forecasts, and then assembled, packaged or otherwise completed at a point downstream in the supply chain, closer to the customer. Example at the logistic centre of a third party” (Shah, 2009).

(3) SUPPLY CHAIN MANAGEMENT

“Supply management is the coordination of production, inventory, location, transportation, information among the participants in a supply chain to achieve the best of responsiveness and efficiency for the market being served” (Brindley,2005).

Difference between traditional logistics and supply chain management

Supply chain management    Traditional logistics
Supply chain management covers all traditional activities and also includes activities such as customer service, promotion, funding, new merchandise development,       Its concentrate on activities like procurement, distribution, maintenance, and inventory management
Supply chain refer to integration of organisations that coordinate their actions and work together to distribute a merchandise, to marketplace. Traditional logistics occurs within the boundaries of a single organization

(4) FIVE MAJOR SUPPLY CHAIN DRIVERS

The right combination of responsiveness and efficiency in each of these drivers allows a supply chain to “increase throughout while simultaneously reducing inventory and operating expense” (Cohen,2005).

(4.1) Production

It is first driver is supply chain management. Production is the strength of supply chain regarding to constructing and accumulating products. Production services are warehouse and factories. if warehouses and factories are built with a lot of excess capacity, then it’s become very easy to organisations or companies to respond quickly for customers demand. Production activity covers manufacturing, equipment safeguarding and quality control. From the above fig responsiveness versus efficiency, it is clear that, production indicates, which product should be produce? How much need to produced? What is market demand? When should be produced?.

(Sheikh, 2003) “Factories can be built for manufacturing of product focus, a factory that takes a product focus performs the range of different operations required to make a given product line form fabrication of different product parts to assembly of parts.”

Example:- Dell

According to Dell sources, limerick factory have built with a lot of excess capacity. that why it’s become very easy to Dell’s to respond quickly for customers demand. They also claim that, limerick factory have already bay geared up for upcoming capacity, further more they are planning to increase the server line’s capacity in the upcoming year. Dell has little bit contrast to above theory, i.e. they don’t have warehouses. one more important thing for dell is that, they are not assemble a single processor until it has been demanded by customer and credit cleared, because they don’t want to take any risk. Dell think that, computerization bring dynamic revolution in services, such as orders are receiving at business units, then downloaded to personal computer after every quarter. After that, orders are forward to factory planner who consider inventory photograph and proceeds material requests. Then in very short spam of time Dell distribution centre responses to request. Normally distributors have local network and constrained for supply prepared.

Dell’s factory has five assembly lines for desktop PC, two for notebooks and a server line. However, all the lines can be changed according to demand. Lines 4 and 5 are flexible and can build portables or desktops as per demand. The process begins in the kit area, moves to the build area, the may go to the custom factory line for anything not usual that need to be done (Dell, 2009a). Dell technical team does quick test for assembled personal computers with respect with customers order. The reason behind this is to verify the product. Dell technical team oblique to finish test very quickly i.e. not more than 5 minutes, then assembled personal computer send back to conveyor. Then Dell engineers team load software by braking the seal on the personal computers, and verifying all the application. loading of software in a personal computer is time consuming and normally it takes four to five hours for each unit.

Then finally, labels with authenticity are added with different companies such as Intel, Microsoft. Next step is personal computer get a general clean, goes in a box, and a barcode label is put on the box. then 10% of products are audited on a random basis, to verify all the work process done in the personal computer. Dell want to ensure it’s not affecting its liability or the customer experience (Dell, 2009b).

4.2) Inventory

Second driver in supply chain management is inventory. Primary purpose of inventory is to act as a buffer against uncertainty in the supply chain. Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency, the cost of inventory should be kept as low as possible (Chang, 2004). It covers three types of inventory such as Cycle inventory, Safety inventory, Seasonal inventory. Normally cycle inventory fulfilling requirement for the merchandise. on the other hand, safety inventory assumed buffer aligned with insecurity. Where as, seasonal inventory based on prediction which happen in definite time of period.

Example:- HP imagine and Printing Group

Hewlett Packard imagine and printing group is one the leading player in inkjet suppliers and printing products. Hewlett Packard previous practice was, to allocate similar capacity or similar life cycle phase product at a same location. By using a multi-echelon optimize tool Hewlett Packard inkjet slashed generally inventory by fifty percent. Hewlett Packard uses the tool in mechanized yields, pipeline levels, forecasts correctness, previous variables to produce target safety supply, time phase. etc.

With the multi echelon tool, HP found it was carrying too little inventory for items with special packaging, which had lumpy demand, and too much inventory for low variability, high volume packaging operations. the group also found that for items with long lead times, it had to increase buffer inventory at certain points in the supply chain, but that by doing this the overall service levels to customers could be improved. in aggregate, this new approach both reduced inventory and improved customer satisfaction (HP, 2009).

4.3) Location

Third driver in supply chain management is location. Location is one of the most important factor in supply chain management, because correct location decision give half of the business success, in other words location decision is strategic planning which commits long term schedule for huge amounts of money. Before selecting location for any business it is very important to consider various factors which covers infrastructure, availability of customers and suppliers, availability of skill workers and non skill workers, tax and tariffs, other facilities in low cost. Once location is fix, that leads the product to the final consumer. important think in location is that, all this activities should be control form common place.

Example :- Toyota Motor

Toyota’s motor running manufacturing operations, at different location around the world they had fifty one overseas manufacturing industries nearly twenty-six regions. as per above mentioned theory Toyota running manufacturing operation in low labour cost, countries like India, china, Thailand, South Africa, Venezuela, Malaysia etc. On the other hand they are running manufacturing operation in best facilities providing countries like Germany, UK, USA, Australia, Mexico, Canada etc. Facilities includes good infrastructures, with modern technical facilities .But all these activities are control and centralize from the Toyota’s headquarter Japan.

(4.4) Transportation:-

It is the fourth driver in supply chain management is transportation. From the figure (Responsiveness versus Efficiency) it is clear that, transportation indicates that, how to move product? and when to move product? There are many modes to move product from one place to another such as fast mode and slower mode. Usually fast mode of transport are expensive for example Airplanes. On the other hand slower mode of transport is chief, for example rail, ship etc. now a days most of the companies receiving order by catalogs or internets and try to deliver product as soon as possible through airplanes, rail, ship or their own modes. Apart from this pipeline transport and electronic transport are in use. pipeline transport are basically useful to transport gases or liquid like natural gas, oil and water. Where as electronic transport is another fastest mode of transport which move certain type of products only like text, pictures, music etc. transportation will be effective when it is control from central hub rather than controlling form many branches.

Example:- FedEx

Transportation management has become the most outsourced component of supply chain management and FedEx as well.

From above fig it is clear that FedEx receiving customer order by telephone or by internet tools like shipment visibility, web order entry, event management /altering etc. Web-based management of customer order allows customer to review, confirm and even change order attributes, no just once but at multiple stages before dispatch. Then customer can view inventory motion, receive event alerts as they occurs, as supply proactive notification to customers before an event becomes an unexpected and unpleasant surprise. And then order transfer to FedEx transportation management, which perform various roles like, verification of order, planning for dispatch, financial settlement and operational reporting that can reduce administrative costs further more FedEx monitor customer compliance, validate order accuracy, and employ sophisticated planning processes to minimize overall transportation expense. FedEx also give customer the confidence of knowing that there is a group of dedicated, experienced professional making sure customer shipments come and go as planned. With such kind of visibility and peace of mind, FedEx can deliver reliability to customers, then FedEx transportation management pass the tender with various options such as FedEx express, FedEx ground, FedEx fright, FedEx custom critical, FedEx trade networks, after that status for delivery transfer to again FedEx transportation management and finally FedEx transportation management load plan to shipper facility. Shipper facility at FedEx transportation management is very flexible which help customer for lower transportation expense through a process of consolidation, aggregation, mode selection, and service levels. Shipment management at FedEx transportation delivers customer products where, when, and how they want.

According to my opinion if supply chain management is not FedEx core business, it can take too much attention away from what is. And that is not the way to stay competitive in today’s apparel marketplace, where late arrivals can mean lost sales and excess inventory.

(4.5) Information:-

Information is last driver in supply chain management. Importance of this tool is increasing every year in supply chain management because of this companies are able to take correct decisions in business. Information plays important role in supply chain in two ways, such as Coordinating the daily activities andby Planning and Forecasting. Basically Coordinating daily activities connect to other four drivers of supply chain management such as production, location, transport, inventory on the other hand Planning and Forecasting predict and try to fulfil the upcoming requirements of consumers. Information help the companies to make future planning. It is an important tool in making strategies, that helps the companies to about whether to stay in market or exit from market.

Example :- Procter and Gamble

Previously Procter and Gamble had lot of issues with retailers and distributors by supplying excess quantity, of popular product like Pampers disposable diapers because market demand was less. The reason behind this is lack of correct information. So re-evaluation team of Procter and Gamble started to work back all the way through supply chain information sharing system. hence, because of supply chain state of the art information sharing system Procter and Gamble had able to solved the issues with retailers and distributors also information sharing system helped to Procter & Gamble to gain a competitive advantage on competitors, and to make future planning for manufacturing, and distributing of Pamper disposable diapers. So by continuing through the supply chain sharing information system today Procter and Gamble is able to do maximum profits.

Information in supply chain management, “much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generate by the operations of the other four drivers” (Gattrona,2009).

5. Conclusion

In conclusion, I would like to emphasize that supply chain management provides a huge number of ways to enhance output and effectiveness and consequently bargain unit expenses. Furthermore, effective supply chain management gives the competitive advantage over the competitors. So, competitors realised that actual rivalry is not organization versus organization but moderately supply chain versus supply chain.

“Each supply chain has its own unique set of market demands and operating challenges and yet the issues remain essentially the same in every case. Companies in any supply chain must make decisions individually and collectively regarding actions in five areas such as production, inventory, locations, transportation, and information” (Handfield, 2002).