Colorado State University Benefit Community Development Discussion

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Primary Discussion Response is due by Friday (11:59:59pm Central), Peer Responses are due by Tuesday (11:59:59pm Central).

Primary Task Response: Within the Discussion Board area, write 400-600 words that respond to the following questions with your thoughts, ideas, and comments. Be substantive and clear, and use examples to reinforce your ideas.

Research a real-world company that has expanded operations internationally. Write 400-600 words on international supply chain management, using the company that you researched as your focus. Your response should cover the following:

From manufacturing to the distribution of goods on an international scale, discuss the elements of a supply chain.

What are the steps involved in producing an order and shipping it to the customer?

Identify some of the risks behind not completing certain activities on time (think of the customer impact).

Compare and contrast the advantages and disadvantages of international operations. 

Provide citations and references to support your discussion.

Responses to Other Students: Respond to at least 2 of your fellow classmates with a reply of 100-200 words about their Primary Task Response regarding items you found to be compelling and enlightening. Use the following to guide you in your responses:

Discuss the pros and cons of each technique discussed.

Would you utilize it in your current of future place of      employment? Provide justification for why or why not.

Please submit your assignment.

For assistance with your assignment, please use your text, Web resources, and all course materials.

Respond to these 2 post 

Post 1!

  • Starbucks has responsibilities that include more than 70,000 outbound deliveries per week to Starbucks retail stores, distribution channels and outlets worldwide. In order to keep the supplies flowing to their customers it is important to have a strong supply chain. The Starbucks supply chain includes the raw materials such as the beans and milk, the roasting, manufacturing and packaging plant, the delivery companies and the retail stores. Starbucks has a total of six roasting centers where the beans are prepared and packaged, which may seem like small for such a large company but because of the centralized system they are very effective.

Starbucks works directly with growers because the company is committed to only selling ethically sourced, fair trade coffee. Coco beans are picked and packaged and the unroasted beans are taken by truck to the ocean liners and shipped to the six storage sites in the US and Europe. The roasting centers make sure all the beans are prepared, manufactured and packaged in the exact same way and quickly. After they are roasted and packaged they are shipped to eight central and forty-eight regional Starbucks distribution centers. From there they are delivered to 16,700 retail stores, which serve 50 million customers in 51 countries each week.

  • In 2008 Starbucks was not sure they were meeting their supply chain goals. From October 2007 to October 2008 supply chain cost rose from $750 million to more than $825 million yet sales dropped by at least 10% in the US. One thing that Starbucks found was their deliveries were not arriving on time. In fact, only half of their store deliveries were arriving on time. Outsourcing had been used to allow supply chains expand rapidly and to keep up with store openings but it also led to significant cost inflation. Due to deliveries not being made on time, stores did not have the product needed to serve customers and therefore had an effect on sales.

Some advantages of international operations include gaining new customers for the products. International operations can allow businesses to establish low cost production facilities in locations that are close to raw materials that are needed. Also, larger scale production allow for higher sales and lower prices.

Language, culture and value systems are different for each country and can create barriers to communication and problems with managing the people which can be a disadvantage to international operations. Gaining an understanding of regional organizations can often be difficult but are required for international business operations. Another disadvantage is keeping informed of competitors in foreign lands.

The image below shows where different products come from in order to make coffee at Starbucks including paper cups, coffee beans, and sugar sources. 

Post 2!

Amazon was founded by Jeff Bezos in 1995 in his home garage in Washington (Hartmans, 2018). It has become a huge international success due to the ability of purchasing anything from hand soap to gym equipment right from your own home. Amazon’s great supply chain management has a huge impact on its success. The company provides warehouses known as fulfillment centers that sellers send their inventory to or Amazon stores their self-manufactured products to be sold (Johnson, 2018). The fulfillment centers are placed near major cities for faster delivery and stocked with inventory to meet supply and demand of that area. Once Amazon receives the inventory it is stored in the fulfillment center, where it is prepped for customer sales (Johnson, 2018). The customer then places an order for the product on the website. Once the product has been ordered it is picked, packed and shipped from one of the fulfillment centers that is nearest to the customer or has that product in stock. Amazon can deliver products in many different methods to ensure the delivery time is kept short. Some products are shipped by a major shipping carrier, delivered by a branded vehicle from its transportation fleet or in some areas, the product can be delivered by drones (Johnson, 2018).

Amazon provides customers with 24 hours, 7 days a week support for any inquiries on their orders they placed (Johnson, 2018). If orders are not completed on time, whether it be due to shipping delays or out of stock inventory, customer would become unsatisfied and stop using their services. In the end it would result in loss of profit and a big enough loss can shut Amazon down completely. Customer purchases are a big driving force for most companies, so a satisfied customer is very important to success.

Because Amazon is an extremely large worldwide company and constantly growing they have fulfillment centers placed all over the globe. Fulfillment centers are now in 22 different countries totaling up to about 309 as of April 2019 (Wulfrat, 2019). Because they have so many fulfillment centers all over the world, I can’t see a disadvantage to international operations. There is not a shipping delay concern for most areas because the centers are placed strategically. The centers also offer employment opportunities for the population in the area. I can see more advantages to the company’s growth and profit by expanding to other counties because they have a larger market of customer and reduce international shipping charges if they are able to fill an order in the same country.  

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Domestic Logistics Decisions First and foremost, the logistics function includes a number of subactivities that must all be integrated into the supply chain to gain the most benefits from logistical activities. Regardless of whether a company is operating domestically or internationally, these subactivities include the following: • • • Inbound shipping Warehousing Outbound shipping Inbound shipping Inbound shipping, or bringing raw materials and supplies from vendors, may include vendors who are nearby and vendors who are far away on other continents. Vendors may include manufacturers, distribution centers, or stores. Inbound shipments are typically arranged by vendors if they are small in size and weight (known as less than truckload [LTL]), while large—especially truckload-size shipments—are arranged more and more by the purchasing firm to gain control and economies of scale. Actual deliveries to the firm may be made by local two-axle vehicles (medium-sized trucks) that can navigate city streets easier, while long-haul tractor trailers are typically used for longer distance freight. Warehousing Warehousing of finished products may be adjacent to the factory or in any number of strategically located distribution centers (DCs). The warehouses might be company-owned, or the firm may contract with public warehouses to handle any of a number of logistics activities. Choice of location is a very analysis-intensive activity that depends on dozens of variables, including the following: • • • • • Cube size of finished products Location of most current customers Location of most future customers Distance from various DC locations to those customers Distance from the manufacturing plant to those alternative DC sites being considered Outbound Shipping Outbound shipping activities are shipments from the factory to remote distribution centers or international customers and locations. The physical shipping alternatives that applied for inbound freight apply to outbound freight as well. Special forms of these would include having the company's own private fleet for the actual transportation or using common carriers. These are firms whose service is the physical shipping itself. Another form is third-party logistics (3PL) firms. These are firms that can do any combination of scheduling of inbound and outbound freight, having their own fleet, brokering of other fleets' trailers, and actual public warehousing activities. Payment of International Shipments (LOC) magine if a firm goes through the effort of scheduling an overseas shipment, arranging the freight to the dock, and arranging for local dock-to-customer shipment at the other end, and then a problem is found by the customer. The problem could be subpar quality, quantity discrepancy, or any other number of reasons for rejection. Invariably, this can create a very large and costly legal dispute. Imagine how the shipping company would feel about its shipment not being accepted after 3 weeks on the water. To overcome the risk on the part of the shipper, the most common means of arranging payment is a letter of credit (LOC), or more specifically, an irrevocable LOC. This LOC works in the following fashion: 1. The overseas purchaser, working with its local bank, deposits funds equal to what the eventual invoice price will be from the shipping company. 2. This bank drafts a legal document called a letter of credit. 3. The LOC explains that the deposited payment will not be transferred to the shipper's bank until customs paperwork is cleared at the dock in the receiving country. Once the customs paperwork is cleared, the buying company cannot stop payment, and there is no need for a shipper’s potential argument over whether payment should be made. The last thing that anyone wants, particularly the shipper, is to have to return the container load of products back across the ocean. This is almost unimaginable in terms of wasted costs. Multiple Domestic and International Distribution Centers Distribution A significant competitive advantage in most firms includes reducing or maintaining low costs while achieving high responsiveness and agility. The purpose of distribution is the movement and storage of products through all stages of the supply chain, coordinating and controlling this activity from the supplier through the supply chain to the customer. When the trade-offs are managed appropriately, distribution adds to the business's competitive advantage by driving profitability through direct impact on supply chain costs and overall customer satisfaction. Factors that influence distribution include evaluating performance along several dimensions, including consideration of customer service and profitability. Distribution used and planned appropriately has a direct impact on four supply chain costs: inventories, transportation, facilities and material handling, and information in all forms. By addressing response times, variety and availability of product, transparency and visibility of transactions, and the ability to return product, a business can achieve improved competitiveness over the competition. Risks and Challenges The added challenges when working internationally include supply price; terms and conditions; costs of delivery; warehousing and inventory; cost of quality; taxes, tariffs, and duties; cost risks and fees; infrastructure; exchange rates; trade agreements; and political considerations. All must be part of the decision process as well as a robust risk identification and mitigation process. Risks to supply disruption and delays must be anticipated and planned for. Typical risks associated with international distribution are the distribution network, delays, information systems, additional forecasting complexity, intellectual property and proprietary information, and the import and export concerns involved. A good distribution network design can play a significant role in mitigating risks in an international supply chain. Mitigation plans for international distribution might include increasing capacity, developing secondary suppliers, increasing safety inventory, developing a robust sourcing process to expand at need, and developing distribution flexibility. Distribution Flexibility Distribution flexibility can be summarized into three categories of new product flexibility, mix flexibility, and volume flexibility. New product flexibility is the ability to introduce a new concept or product into the market at a rate that is exponentially more rapid than traditional product introduction. Mixed flexibility is the ability to introduce multiple new products into the marked simultaneously or within short periods of time from each other. The last flexibility, volume, is the ability to vary the business output and still maintain profitability. Design Options for Distribution Networks Distribution is a key element of the logistics and supply chain process. You might typically think of distribution as the transportation and facilities involved in moving and storing products. Distribution is more complex than this and includes the activities and decisions of consolidating, packing, decomposition of packaging, as well as other functions that are related to handling of freight. As with all elements in logistics, distribution focuses on those value-added services with short-term freight storage as an alternative to long-term warehousing. Design options for distribution networks fall into six broad categories: manufacturing storage with direct shipping, manufacturing storage with direct shipping and in-transit merge, distributor storage with carrier delivery, distributor storage with last-mile delivery, manufacturer and distributor storage with customer pickup, and retail storage with customer pickup. Using the available information and selecting the appropriate distribution network is critical. The challenges with international decisions are the additional delay, distance, and risk factors mentioned previously. Countertrade Countertrade is a result of one of the challenges when working internationally. In situations where soft currency exists (currency that is not stable due to political or economic instability), countries may restrict the repatriation of earnings made in these situations. These restrictions may come in the form of untenable exchange rates or simply prohibiting the country’s currency from leaving. When situations like these exist, companies establish countertrade, in which the exporting company accepts payment in noncurrency forms. Criteria for Expanding Shipping Domestically and Internationally Expanding Domestically As you look at the decisions for multiple distribution locations, the main focus is to improve response time while reducing overall costs; you can start to visualize why a business would want to expand within countries’ borders. Developing strategies to capitalize on these factors includes distribution and shipping. The basic criteria for expanding will include considerations from each region or state. Businesses are looking for the right combination of labor availability and costs. Businesses will also want to understand governmental incentives and fiscal policies as well as environmental regulations. As with all decisions, domestic or international, proximity to raw materials, customers, and land and construction costs are factored into the decisions. Expanding Internationally As with expanding domestically, international expansion is a business decision to decrease costs while simultaneously increasing revenues. International expansion strategies can fall into four groups: basic international strategy, global strategy, multidomestic strategy, and transnational strategy. International strategies are simplistic in nature, usually involving importing and exporting or licensing an existing product. Although a low-cost strategy, it is also slow in responsiveness. Global strategy approaches focus on standardized products, economies of scale, and cross-cultural learning. This option is higher in cost while remaining responsively slow. Multidomestic strategy uses the domestic models globally and in franchises, joint ventures, and subsidiaries. These strategies are highly responsive and low in cost. Transnational strategies focus on moving materials and ideas across national boundaries, focusing on economies of scale and cross-cultural learning. Adding to the complexities of domestic distribution decisions are considerable risks associated with business and distribution internationally. When considering the uncertainty of demand that plagues most products and services, adding flexibility into the distribution network by increasing production and supply capacity is very appealing. When making a decision to expand distribution domestically, the business must consider total costs. Historically, many decisions were made primarily on labor savings, but other costs can outweigh these benefits. International expansion has the potential of increasing the time of information, product, and financial transactions. There is an inherent cost and complexity increase when managing internationally versus domestically. The best decisions are made when all variables are identified and tracked over time. Response Time Response time is a trade-off decision about the number of facilities that a firm desires. Increasing the number of facilities allows firms to have more materials, whether that be raw, in work, or finished materials in key locations. This could be adjacent to the source of supply (supplier) or the source of demand (customer). These trade-off decisions do not come without a price. Literally, the more facilities that a business has, the more costs are incurred, and this is the balance that businesses have to identify and maintain. Knowing your customer is paramount. If your customer requires, desires, or has contracted with a business for a 72-hour response time, the decision to locate a large central distribution center in in a central location to the supply and demand, allowing the product to be delivered within a 48-hour window, is both responsive and cost-effective. Locating a distribution center within a 2-hour response time location could be costly and create response time problems for other customers. Inventory Costs If a firm chooses to maximize response time by increasing the number of facilities that it has, there is a correlational increase in inventory costs with the number of facilities used. The more facilities, the more inventory in the facilities. If your firm has a geographically diverse customer base with diverse demands, a greater number of facilities close to the customer with the specific type of inventory the customer requires may be appropriate. If you have a geographically diverse customer with similar demand, the multiple facilities may not be the most cost-effective option, and response requirements can help the firm determine the need, number, and location. Transportation Costs The number and location of facilities also affects transportation costs in the distribution system. In this decision, you have a conundrum as the increase of the number of facilities reduces the transportation costs to a point. Once you reach a certain threshold for facilities that is driven by various factors, the transportation cost between multiple facilities starts to increase exponentially. Although increasing the number of facilities to reduce the transportation costs between facilities and the customer may seem intuitive, other factors affect this. Facilities Costs Lastly, the use and occupancy (U&O) and maintenance, repair, and operating (MRO) costs of facilities are factors in distribution decisions. The U&O and MRO of facilities include any costs associated with purchase, lease, or rent of facilities, space usage, maintenance, general consumables, and utilities costs. The more facilities that a firm has, the more costs for these facilities will be incurred. International Logistics Challenges Although logistics functions and goals for any domestic firm or industry do not change much in terms of complexity, a far greater array of challenges occurs when a company decides to start expanding into an international market. Tariffs, Duties, and Import Quotas For example, if the domestically located logistics manager is arranging inbound freight of raw materials from country A, B, or C, then potential overseas shipping delays; special tariffs; duties; and import quotas, restrictions, and licenses may need to be considered. Delays in customs can add anywhere from a few days to weeks or months, depending on what issue customs has with paperwork or the containers' contents. Scheduling Challenges From an outbound perspective, the logistics manager—above and beyond normal scheduling challenges—needs to consider the method of payment. This may be in the form of a letter of credit (LOC), normal credit terms, payment in advance, and so forth. When shipping domestically to a firm's customers, there are ample choices of trucking that can be scheduled. Even last-minute, unplanned departures can be arranged within hours in most cases. But this is not true when shipping either less-than-container load (LCL) containers or full containers on an ocean-going freighter. Space Considerations There is very limited space on a selected freighter. It cannot wait at the dock for late arrivals of outbound loads. The freighter company wishes to maximize space utilization because that is what it is selling. Because of this, ocean-going freighter arrangements are usually made weeks or even months in advance (as opposed to hours or days for domestic tractor-trailer arrangements). The required arrival date (e.g., in a port in Europe) has to be established first. Availability of Transportation Shipping companies must be contacted to see which company has ships arriving on or before that date and which have room for the load being sent. Then, domestic trucking time—including outbound factory delays—must be considered to establish the date that the domestic truck has to leave the factory to arrive at the outgoing port on time, keeping in mind possible delays or customs clearance. Weather delays at sea are an added complexity. Ocean Freight Shipping When international logistics are considered, the choice and expense of ocean freight shipping becomes more of a challenge. The shipper must decide on whether the shipment will be LCL or a full container load. Containers are typically two sizes: full-size, like a trailer truck, which is 40 feet long, or a half container, which is 20 feet in length. The cost per pound shipped goes up dramatically if LCL will be employed. A way to mitigate this added cost is by combining your LCL shipment with other firms' LCL shipments and to fill a container with various customers’ shipments. There are firms, known as consolidators, that specialize in container consolidation. Payment Considerations Finally, although the very best arrangements can be made to accommodate these challenges, unless the required payment methods have all been arranged, the pickup at the domestic factory will not occur, and everything subsequent to that will be sacrificed in terms of meeting the dock pickup date. Quantitative and Qualitative Measurement Quantitative Measurement No matter what kind of business the logistics function is a part of, the success of the logistic plan is measured by the success of the company, particularly from a cost and customer-service perspective. Although metrics of success will differ depending upon industries, the common quantitative metrics that are used by most firms would include the following: • • • • • Percentage of on-time, complete shipments Total shipping costs as percent of sales Total inbound shipping cost as a percent of money of inbound freights Premium freight money paid because of a logistics error General customer satisfaction The following is an example of quantitative measurement: The total shipping cost is typically 5–10% of sales. Although this may not seem like much, it can be up to a million dollars for a $10 million company. Even if freight is charged to the customer, in the most typical situation, the customer is just as concerned about maintaining economic shipping costs for him- or herself, so the shipping company needs to pay just as much attention. For transocean shipping, the costs go up dramatically. For example, a container load going from the United States to Australia or Japan could costs upwards of $3,000, while shipping to Europe is closer to $1,800. In the typical 10 by 10 by 40-foot container of 4,000 cubic feet, imagine the cost of shipping refrigerators. If a fridge is 3 by 3 by 6 feet in size, that means 4,000 / 54, or approximately 75 refrigerators. With the freight cost of $1,800 to Europe, this adds $24 to the cost. In the case of a shipment to Japan, it becomes in excess of $40 per refrigerator when you add up the ocean freight and local drayage parts of the shipment. Qualitative Measurement In addition to quantitative measurements, there are frequently special qualitative assessments of logistics performance. Although the above metrics are pretty standard for large retailers, and there is not much interaction between delivery personnel and the actual customer, there are other shipping situations in which customer service takes on a whole new meaning. The following are a few examples: Consider drivers who deliver and assemble bulky, heavy, and very expensive products such as pianos, pool tables, and back some years ago, mainframe computers. Imagine the added challenge of delivering these items up three flights of stairs or into a newly carpeted facility such as an office, health club, or private home. Household relocation companies, or what consumers would simply call movers, are letting drivers and unpackers into their private home. They want care to be taken with special belongings, and damage to walls and doorways is also a concern. In the case of the residence move, both ends of the shipment are involved. A piano, for example, not only is an expensive piece of furniture, but a finely tuned piece of musical equipment as well. For new heavy strength-training equipment going into a newly remodeled health club, there is an extreme need for meeting reliable shipment dates because the club owner has probably arranged for a very limited installation window. Typically, in these situations, the club would close for one day to have new floors put down and any other remodeling work, and the new equipment must arrive on time for the club to be able to reopen the next day. Standard metrics may not account for these types of situations. Impact of Logistics on Procurement Much of logistics deals with the activities that are downstream of a factory, such as the outbound shipments to customers and possible temporary storage at a regional distribution center. However, although it is of less public importance, the inbound transportation and storage of raw materials that are needed by a factory, or that of finished products that are being brought into a large retailer are of equal importance. For example, a typical manufactured product may have anywhere from two parts (a simple toy) to three million individual components (jet aircraft); some are manufactured, but many are procured from the upstream supply chain or vendor base. As more firms move toward just-intime (JIT) scheduling systems, the timely pick-up (at both suppliers) and shipment to the factory or large retailer is of critical importance. For the manufacturer, an entire assembly line can be shut down because of a lack of timely delivery. Auto plants typically charge their vendors thousands of dollars per hour of assembly line downtime because of a late delivery of parts. Impact on the Customer Imagine that a large retailer has spent millions of dollars on an advertising campaign for gas barbecues, for example. All of the ads announce that the sale begins and ends over the Memorial Day or Father’s Day weekends. What happens if the gas barbecues arrive 2 days after the announced sale period? This is an absolute disaster for the store and its customers, and the firm’s logistics management team will be held responsible. In addition to the economic benefits of having their own fleet, large retailers do this to have control and flexibility in terms of timely pick-up of merchandise at factories or a port if the materials are coming from overseas. Non-commercial Impact of Logistics Unlike decades ago, when the arrangement of inbound shipping or outbound shipping was considered an afterthought, the modern large retailer or manufacturing company now recognizes that the logistics function is a key activity in the firm. Its success or failure can and will have an effect on the overall company. Military branches have been aware of this for decades. Some commonly known noncommercial logistics include the following: • • • The Battle of the Bulge in 1944–1945: A prime reason for the Allies being victorious was because of the German Army's inability to maintain its supply line of diesel fuel for its armored tank divisions; with no fuel, the German Army could not engage in battle. Berlin Airlift 1948-1949: After World War II, Russia set up a blockade surrounding Berlin, GE for various political reasons. The city was cut off and did not have access to food, coal, and the things necessary for survival. The United States and Great Britain flew over 275,000 flights to resupply Berlin with an excess of 2 million tons of cargo over a 15-month period. Aftermath of the earthquake in Haiti in 2010: There was a worldwide outpouring of relief efforts in terms of water, food, and medical supplies; however, because of logistical errors, compounded by an unclear command and control, and a lack of unity of effort, much of the material took weeks to be distributed off of the unloading dock at Haiti’s port. Commercially, perhaps the best example of the impact that logistics can have on company success is that an entire industry—the overnight small-package delivery industry—was created out of the desire for reliable, fast delivery of small packages and letters. This industry is based solely on excellent logistics. Sustainability of the Future of the Supply Chain Sustainability is more than just being green. A general definition of sustainability is the endurance of systems and processes. In the narrow sense, this means the company stays in business. However, the broader supply chain view requires thinking of the sustainability of the entire network. The triple value model, developed through the Organization for Economic Cooperation and Development (OECD), is being integrated into the U.S. Environmental Protection Agency’s analysis toolkit as a framework for systems thinking that explicitly defines the linkages and flows of value among three major categories of systems—industrial, societal, and environmental. Each of these three systems must endure for the supply chain to endure. Sustainability––the enduring nature of a system––is not just a future issue. It is critical that logistics and supply chain managers consider sustainability during all phases of the product life cycle, now and in the very far future. At the very beginning, product development in the laboratories must consider the impact of the product design on the industrial, societal, and environmental systems that it will soon become a part of. Decisions about the materials used in the product, how it will be packaged, and how long it will last in use are set during the initial research and development. As the product goes into production, the manufacturing plant must consider energy usage, water contamination, and the exhaust gases that may enter the environment. Distribution of the product should consider sustainability in the ways the product is handled and transported––more greenhouse gases may be produced during shipping than in production. And at the end of life, how will the product be disposed of by the consumer? In a landfill, or recycled or reprocessed for potential recovery of precious and hazardous metals? Whether it is the acquisition of a major system with thousands of components or just basic, good sustainability at each phase of the product life cycle, this is critical for ensuring proper stewardship. However, these decisions are not just about protecting the future. Sustainability is also about now––the only way to survive into the future. The sustainability spectrum is divided into four time horizons: security, reliability, resilience, and renewal. Security is the day-to-day survivability of the supply chain against deliberate attacks, natural disasters, and industrial accidents. Reliability is about how the equipment operates and how the products function on a daily basis. Resilience, as mentioned previously, is about surviving the inevitable disruption and adapting to both the changing environment and the changing organization to grow as a profitable business. Renewal is the disruptive innovations that people create by design: electricity, the automobile, the airplane, the smartphone. These product innovations have revolutionized industries, changed societies, and impacted the environment––for better or worse. The Problem Within each time horizon, the sustainability of the supply chains must be considered within the context of each of the systems in which they exist: industrial, societal, and ecological. These systems must work in harmony with each other in the closed-loop system called Earth. Industrial Industrial systems use resources to create. Goods and services created allow societies to thrive and grow. But, these industries must be good stewards of the limited resources available. In addition to producing needed goods and services, industrial systems also produce waste. Supply chain designers should consider the types and amounts of waste. They also need to consider the impact these wastes will have on the other systems: societal and ecological. One growing trend in supply chain design is by-product synergy––taking the waste from one supply chain and using it as necessary inputs for another. Companies are saving millions of dollars while protecting the environment by selling their wastes instead of disposing of them. Societal Societies are the consumers of the industrial system. Societies use the goods and services that are created. Products can be divided into two distinct categories: durable goods and consumables. Durable goods, such as automobiles and appliances, serve useful purposes, and if the supply chains can increase their reliability and longevity, their longer life spans will mean that fewer inputs will be needed for replacements as well as fewer outputs put into landfills. Consumables are used and destroyed in the process (such as food being eaten). These demands for goods and services are not only based on the population of societies, but also the per-capita needs. Energy demands, for example, will continue to rise worldwide as populations continue to increase, but supply chain designers can reduce overall needs by continuing advancements in efficiencies of products, such as vehicle engines, ship hulls, and building insulation. It is, however, the demands of societies that place burdens on the limited resources of the planet. Ecological Systems These are the systems within which people live on this planet. The societal and industrial systems must operate within this sphere. Ecological systems contain four basic types of stocks: renewable resources (e.g., forests), nonrenewable resources (e.g., crude oil), environmental media (e.g., air, water, and land), and energy sources (e.g., solar, wind, tidal, geothermal). The latter may seem endless, but industrial and societal systems must actively manage the media to avoid contamination, the nonrenewables to prevent exhaustion, and the renewables to replenish and avoid extinction. For example, the rich forests of Scotland were once ripe sources of lumber to build growing cities and fleets of ships at the beginning of the Industrial Revolution. Feeding and clothing the people in the growing cities made sheep farming a profitable industry in these newly deforested areas. However, the grazing sheep prevented the natural regrowth of the woodlands, and now entire regions are barren. Active management of natural systems is a mandate for supply chains to survive into the future and be sustainable. The Mandate Supply chain management requires the design, operation, and growth of sustainable networks of companies to meet consumer needs. Managers must clearly state requirements for products and analyze not only their initial impacts during production, but also their secondary impacts during use (e.g., a car’s fuel economy) and during disposal (e.g., amount of recyclable materials). These requirements must be tracked to ensure compliance but also to drive future change if targets are not being met. And finally, verification of requirements is necessary on a recurring basis to see if the goals that have been set are providing for a sustainable solution. Industrial systems cannot exhaust their nonrenewable inputs. Societal systems cannot outstrip the production capacity of an industry’s products and energy production, nor can they create more waste than can be safe for the environment. Environmental systems cannot have their media polluted, cannot have renewable resources harvested faster than regrowth, and cannot have nonrenewable resources used up without suitable replacements. Qualitative Measures of Logistics Success In addition to the quantitative measurement of logistics, there are some additional qualitative measures that most logistics managers consider. They include the following: • • • System information integration Real-time information Accuracy of information System Information Integration Although there are a host of quantitative measurements that can be used to judge the effectiveness of any logistics program, there are other criteria that are less measurable but still important. For example, how easy or difficult is it to perform the scheduling of freight, either inbound or outbound? Are all of the systems of inbound and outbound shipping, manufacturing scheduling, and warehouse space requirements integrated into one easy-to-access database? How easy or difficult is it to get information about a shipment in terms of accurate tracking? Real-Time Information Regarding real-time communication, beginning over a decade ago, technology known as satellite tracking was put to use in most common carrier tractor fleets; this allowed the dispatching company to know exactly where a truck was located. Cell phone and Internet technology have only added to the ease of real-time communication. Real-time communication is vitally important to all stakeholders, given the demands of shorter and shorter lead times, and expected faster deliveries. For example, a factory that is dependent on a particular inbound shipment of raw material to keep the production line going must know, in sufficient time to allow for rescheduling, whether inbound freight is going to be delayed and for how long. Truckers' and dispatchers' ability to provide this realtime information is becoming more important as entire supply chains move more toward just-in-time (JIT) scheduling and production systems. Accuracy of Information Just as more real-time information is needed to effectively manage logistic and production synchronization, so is accuracy of information. Bar code technology, which was invented years ago and used extensively in the retail environment for speed and accurate updating of inventory, has begun to be used by shippers. For example, customers requiring an outbound shipment can now produce preprinted shipping labels, including bar coding, via the Internet. This eliminates the errorprone filling out of forms by hand by the truck driver or customer and allows for immediate, real-time scanning of the shipment as it is loaded on to the truck. At any time, the whereabouts of a scanned box can be quickly ascertained. 4/26/2019 978194392633-9 CHAPTER 6: DOMESTIC VERSUS INTERNATIONAL CONSIDERATIONS 102 T oday’s global enterprises are under increasing pressure to add value to their international operations. Past notions of competitive advantage were largely a series of intangibles that lacked systematic application. Operations management, supply chain management, quality systems, and nancial due diligence standards all lacked discipline and rigor. Largely perceived as separate specialties within the enterprise, they lacked coordination and consistency. Attempts at creating value were largely disjointed and had little focus on the strategic direction and goals of the organization. Enter the 21st century. Survival relies on uncompromising value creation throughout all levels of the enterprise and its associated internal management structures. Today, creation of a competitive advantage is not the sole domain of the organizations’ visionaries or disciplines, such as marketing, sales, operations, or design engineering. When all is said and done, a competitive advantage embraces two 103 QUESTIONS TO CONSIDER https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 1/15 4/26/2019 978194392633-9 Consider the following questions as you discuss this chapter: 1. How does an international operation contribute to the achievement of a rm’s competitive advantage in the global market place? 2. What in uences do governments of emerging economies have on the development of a competent logistics infrastructure? 3. Why do Incoterms play such an important role in international logistics? 4. What are economies of scale? How can they bene t from international logistics? KEY TERMS ➤ (3PL) (p. 108) ➤ (4PL) (p. 108) ➤ choke point (p. 114) ➤ competitive advantage (p. 103) ➤ core competency (p. 107) ➤ cost leadership (p. 103) ➤ differentiation (p. 103) ➤ erp (p. 104) ➤ incoterms (p. 105) ➤ nearshoring (p. 111) ➤ offshoring (p. 111) ➤ outsourcing (p. 111) ➤ transport modes (p. 115) ➤ value analysis (p. 108) ➤ value engineering (p. 108) COST LEADERSHIP Having the lowest operating cost in the industry. DIFFERENTIATION A planned strategy of distinguishing a product and making it more attractive when compared to the competition. COMPETITIVE ADVANTAGE A market position of excellence that is de ned by sharp distinctions of superior processes that convert into exceptional goods and services; these goods and services are seen as superior to the competition’s goods and services. DUE DILIGENCE A validation process used to ensure accuracy through the evaluation of various attributes: cost leadership and di erentiation. Cost leadership is simply having the lowest operating cost in the industry. Di erentiation is a planned strategy of distinguishing a product and making it more attractive when compared to the competition. e enterprises of today must apply meticulous order and highly functional levels of coordination that focus on strategic goals. is includes upgrades in organizational capability and implementing consistent fundamental processes that are repeatable and strong. Sustaining a robust competitive advantage requires full levels of organization-wide integration, coordination, alignment, and optimization of capability. ese are the tangible ingredients that aid in the maturity process of the enterprise from competitive parity to establishing competitive advantage. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 2/15 4/26/2019 considerations that can lead to a decision. 978194392633-9 ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL OPERATIONS e global expansion of business operations in recent years was triggered by the lowering and relaxation of trade barriers. Starting with the North American Free Trade Agreement (NAFTA) in 1993, the European Union’s entry in 1995, the Central American Free Trade Agreement (CAFTA) in 2005, China’s accession into the World Trade104 Organization (WTO) in 2001, Russia coming into the WTO in 2012, and regional trade agreements with South Korea and Vietnam in 1993 and 2012 respectively, these events all lowered the threshold risk for establishing international operations. In early 2015, the United States had 14 trade agreements with 20 countries in place. ese multilateral agreements, along with the pending Asia-Paci c trade agreement, also known as the Trans-Paci c Partnership agreement, gave rise to investment options for U.S. companies and their international counterparts. Prior to the establishment of these trade agreements, a large segment of American business centered on defending manufacturing. It was feared that U.S. manufactures would end up in a manufacturing technology orbit of the emerging Asian manufactures. American businesses sought ways to protect their interests by advocating high tari s on high tech products to protect their products’ niches in the marketplace. Seeking less expensive methods to export their products, American manufacturers soon began to bene t from NAFTA. NAFTA became the model of future trade agreements where the primary ERP (ENTERPRISE RESOURCE PLANNING) objective was to lower tari s and minimize all trade barriers. comprehensive integrated e political evolution away from trade protectionism to free trade began to take hold and began to Abusiness software system that lessen the in uence of trade-policy critics. Manufacturers entrenched in the camp of protectionism, synchronizes the entire especially in the high tech industries, soon realized that increased international business had made organization’s planning and resource needs. major inroads in other traditional businesses, such as the textile industry. e textile industry was, and has been, at the forefront of expanding its operations internationally. Textile took the lead and was on the frontline of developing international operations capabilities. Unlike the antiquated roadmap guiding international expansion, the textile industry focused on technology. With implementation of state of the art manufacturing techniques, automation, and robotics, the industry began rapid operational integration with design capability. New e ciencies reduced costs, ushering in the establishment and expansion of international operations sites at an accelerated pace. Companies such as Oracle Corporation and SAP SE developed enterprise resource planning systems (ERP) with a high level of re nement, enabling automation, transmission, and decision-based data analysis. e impact today of operations is far more e ective and e cient than it has ever been. Today, operations like the ones used in the textile industry leverages technology and not the number of workers despite deriving bene ts from reduced operating and labor costs. Operations today is all about e ciencies guided by evolving manufacturing principles such as statistical process control and lean manufacturing principles, both elements of lean six sigma principles. Presently, operations functions remains at high e ciency levels. Success and capability thresholds continue to accelerate to ever higher standards of productivity. Operational dynamics continue to drive LOGISTICS Part of supply chain management that plans, e ciencies to unmatched levels. And so how should one take measure of the successes and implements, and controls the shortcomings of this revolution? ef cient ow and storage of goods, services, and related A good indicator is the converging path that supply chain management and logistics are taking information between the point toward blending each process in support of one another. Traditionally, logistics was viewed as an of origin and the point of activity that added little value to supply chain management. e focus was on cost management and consumption to meet customer requirements. not much else. Initially, logistics methodology focused on physical distribution warehousing, inventory management, and inbound and outbound transportation. Contemporary logistic practices concentrate on getting the customer service piece right, achieving cost e ciency across the105 entire logistics chain, establishing pockets of competitive advantage, and dramatically raising the performance of the organization. Important fundamentals include the following: ■ Design and management of transportation networks ■ E cient methodologies that govern the functions of warehousing ■ Inventory management ■ Materials handling ■ Greater visibility of inventory status and order status https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 3/15 4/26/2019 ■ Improving 978194392633-9 customer service ■ Procurement International logistics is governed by a set of rules that de ne the responsibility of sellers and buyers. Known as Incoterms, these regulations are a set of uniform rules for the transportation of international commercial terms de ning the following: ■ Costs ■ Risks INCOTERMS The set of rules governing international ■ Obligations of buyers and sellers logistics de ning the Incoterms is an abbreviation for the International Commercial Terms that are put out by the responsibility of sellers and International Chamber of Commerce (ICC). ey deal with the questions related to the delivery of buyers. product from the seller to the buyer and include the following: ■ Carriage of the product ■ Export and import clearances responsibilities ■ Who pays for what ■ Who bears the risk for the condition of the products at di erent locations within the transport process Incoterms must always be used in conjunction with a geographical location (FOB alone is not a recognized Incoterm). Incoterms do not deal with the following: ■ Transfer of title and other property rights ■ Payment terms Updates have been made over the years because of changing trends in shipping, cargo security, and rapid expansion of world trade. e current recognized version is Incoterms 2010. Examples of expenses addressed by Incoterms are as follows: ■ Inland transportation to port and or airport ■ Forwarding fees ■ Export custom clearance formalities and export duties where applicable ■ Origin terminal handling or loading fees ■ Consolidation fees ■ International freight expenses ■ Destination terminal handling or unloading fees ■ Import customs formalities, duties taxes, and fees ■ Insurance ■ Inland transportation to the place of delivery Incoterms are broken down into four sections, and they are as follows: ■ E” Terms: Departure – e seller makes goods that are available at the seller’s premises or at another named premise, and these goods are not cleared for export. – ere is minimum obligation for the seller with the buyer bearing all costs and risks involved in taking goods from the106 buyer’s premises. – An example is ex works. ■ “F” Terms: Main carriage unpaid – e seller must deliver to a carrier and or place speci ed by the buyer, and it must be cleared for export. – Examples includes FCA (free carrier), FAS (free alongside ship), and FOB (free on board, and this should only be used for sea or inland waterway transport). ■ “C” Terms: Main carriage paid – e seller must contract for carriage to a speci ed place (named destination port), and it must be cleared for export. – Examples include CFR (cost and freight), CIF (cost, insurance, and freight), CPT (carriage paid to), and CIP (carriage and insurance paid to). ■ “D” Terms: Arrival – e seller must bear all costs and risks in bringing the goods to a named destination (port or place) – Examples include DAF (delivered at frontier), DES (delivered ex ship), DDU (delivered duty paid), DDU (delivered duty unpaid), and DDP (delivered duty paid). https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 4/15 4/26/2019 978194392633-9 Nowadays, supply chain management has advanced away from the notion of servicing only a speci c activity, such as operations management, marketing, strategic procurement, or even logistics. Now, the thought is that supply chain management’s role is more accurately de ned as a cross-functional set of activities that links all parts of business together. Operational transactions take place in milliseconds, hardly enough time to digest the consequences of business actions if management makes a mistake. Good intentions aside, a lapse in operational due diligence brings about lasting consequences. Countermeasures are reactive by nature because errors need to be corrected as rapidly as possible. Due to their reactive nature, they are often not well thought out, and the consequences of a reaction can make the situation worse. e intent is to correct the lapse at the local level as quickly as possible. Little thought is given to the organization at large. Due to the high integration level of operations within the rest of the organization, consequences remain hidden, and the e ect of recovery actions are not discovered until after a signi cant cost is in icted on the organization. Transactional missteps may not be revealed until it is too late to implement e ective countermeasures. When implemented, these countermeasures are often not decisive and timely enough; they have a delayed e ect in correcting a mistake simply because they do not go far enough in neutralizing a misstep that impacts and a ects the organization. Even so, it is important to review the advantages and disadvantages when establishing international operations because other factors contribute to both. Although there is little doubt that establishing an international operation produces abundant rewards, it also brings a number of inherent risks. ADVANTAGES OF INTERNATIONAL OPERATIONS Competitive Advantage As discussed in the chapter overview, enjoying a competitive advantage means cost leadership and di erentiation. Developed by Michael Porter, cost leadership necessitates that enterprise ownership process and cost controls must translate into having the least operational cost in an107 industry. Operational capability is also a key ingredient of cost leadership. Here, the operation holds process and cost e ciencies enable passing on cost savings to the customer. e e ciency of the operation is re ned through means of automation, process controls, state of the art manufacturing techniques, and rigorous cost controls, enhancing e ciency and productivity. Along with cost leadership, product di erentiation is the other critical ingredient when achieving a competitive advantage. Di erentiation is a strategy that focuses on exceptional product design in terms of function and quality. Customer perception is enhanced because of a product’s unique design and functional qualities, and so the product separates itself from the rest of the competition and is worth the value. Costco is an example of cost leadership and di erentiation. eir strategy focuses on three distinct areas of retailing, and they are as follows: 1. Understand and know the customer. 2. Focus on value, not lower prices. 3. Customer service is not a cost driver; it is an investment. Costco targets the small business owner who is no di erent than any other customer. ese entrepreneurs have incomes that are above average. ey want to buy quality products while keeping their expenditures low. Although not everyone who shops at Costco is an entrepreneur, Costco has remained steadfast in its focus on small, successful business owners. eir monthly publication to the “membership” often gives small businesses advice. Centering on value and not low price, Costco o ers high priced merchandise at a discount. e price range on well-designed and brand name large, at screen TVs, for example, attract customers. e main driver is technology, not price. Although prices are deemed reasonable, the customer is willing to make the trade-o in return for quality and value. Although Costco is often criticized for high labor prices, it is not dissuaded because it is willing to pay for outstanding customer service. Its associates make the extra e ort to hurry to the other side of the store to pick up a forgotten item or nd items the customer is unable to locate or make the customer aware of the latest discounted item. Its checkers are e cient, articulate, courteous, and intelligent and have common sense. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 5/15 4/26/2019 978194392633-9 CASE STUDY: COSTCO C ostco’s core competency focuses on three areas that differentiate them from the competition. These three areas are as follows: 1. Customer knowledge 2. A focus on value, not low prices 3. Achievement of superior customer service Log into Costco.com and click on “The Costco Connections” link at the bottom of the home page. Find three examples of each of the three core competencies and explain how each competency is supported by the material in “The Costco Connection” members’ magazine. Global Economics 108 VALUE ANALYSIS The International operations derive large nancial bene ts from low-cost country operations (LCCO) application of function investments. Operations are incentivized into developing emerging local manufacturing infrastructures analysis techniques to an existing product, process, or through investments. In return, local direct and indirect costs, such as the cost of capital, taxes, and procedure to compare labor, are signi cantly reduced. In the absence of a trade agreement, tari hurdles are diluted and often customer requirements at the lowest cost, speci ed waived with logistic costs signi cantly lessened. performance, and required All this is in exchange for developing and deploying consistent common processes, tools, and level of reliability. training of the local labor force. e objective is to standardize work processes by leveraging the VALUE ENGINEERING enterprise’s best practices. is brings about the formation of quicker learning cycles and strengthens The application of function techniques during the communication within the organization. As the transformation takes hold, international operations analysis planning or design stages of a undergo a makeover where they become a source of competitive advantage. new product before major As a result, operations are aligned with the goals and strategies across the enterprise. Implementation commitments or investments are made; methodology used of robust tools that support the transformation (global data warehouse, training, change management, to execute advanced product and more) are able to withstand rigorous organizational scrutiny. Supporting resources, such as supplier quality planning (APQP). development and value analysis or value engineering (VA/VE), are replicated organization-wide, embracing common reporting internally and externally. An example of VA/VE might be when a customer complains that the common nail holding two boards is becoming loose over time. e product manager investigates with engineering why the nail is becoming loose when the board exes. ey discover that this is typically caused by thermal dynamics. After probing how a nail grips wood, engineering came up with a solution. After limited success with several prototype models, they settle on a design of a nail with spiral barbs and straight barbs at the top of the nail. e nal hammer blow locks the nail into place. is gives birth to a new product that can be sold at twice the cost of the ordinary nail and is well worth the initial outlay of the production cost. Low-Cost Labor Force e most immediate bene t in establishing an international operation is the realization of signi cant savings due to low-cost labor. Di erences in the cost of labor alone creates a competitive advantage, especially when it is sustained by a highly educated and skilled workforce. Although it is true that the cost of unskilled and skilled labor is rising primarily due to higher standards of living, currency uctuations, productivity, and increases in wage expenses, low-cost THIRD PARTY LOGISTICS (3PL) These countries still enjoy a signi cant competitive advantage. are companies that contract e emerging exception is China. Between 2000 to 2013, labor rates increased at an average rate of with shippers to manage their 13.9% annually. As the luster of operations in China loses some of its appeal, focus has begun to shift clients’ logistics operations. The services they provide to other low-cost country regions in East Asia. Vietnam and the Philippines, for example, are the latest include warehousing, focus. e global wage advantage that low-cost countries enjoy today will not end anytime soon. management of transportation software, freight bill auditing, Due diligence and focus on changing macroeconomic circumstances create preconditions that drive and many more logistic organizations into unyielding pursuit of adding value. Companies looking to expand globally tend to elements. chase labor around the world in a relentless search to increase value through reduced labor rates. ey FOURTH PARTY understand that cost drivers change over time. Labor is a signi cant cost driver that does not remain LOGISTICS (4PL) This is a https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 6/15 4/26/2019 non-asset independent company that brings together the resources, capabilities, and technology of its own organization to other companies, replicating and installing capabilities to design, build, and run supply chain solutions for its clients. 978194392633-9 xed because it changes over time. Internal and external forces act on it, and labor can change in proportion to a change in a company’s activities. Economies of Scale 109 Economies of scale are basically when high volume production is achieved at a lower cost. e objective is to reduce the average unit price of production thus increasing product pro t margins. is means taking advantage of volume purchases and creating a specialized workforce. Taking advantage of logistics economies of scale means implementing a transportation management strategy that includes the following: ■ Optimization by mode and or carrier ■ Global visibility throughout the chain ■ Cross unit consolidations ■ Operational and cost reporting ■ Carrier management ■ Accurate freight recovery process Bene ts derived from these actions include the following: ■ Reduced freight costs ■ Improved logistics productivity ■ Logistic nancial control ■ Improved quality and on-time delivery Maersk Line, a Danish shipping company, is perhaps the best illustration of bene tting from logistics economies of scale. Maersk has changed the way people look at logistics economies of scale. Maersk rede ned container shipping to its current state by inaugurating new, larger container ships. Countries expanded their deep water ports to accommodate these larger vessels. e primary motivation behind these e orts was to proactively participate in a greater level of economies of scale. Improvements in port infrastructure, such as dredging ports to deeper depths, increasing the number of port gantries, and modernizing the port’s equipment, increased port capacities when handling cargo. Maersk gained a competitive advantage through economies of scale with the introduction of these types of ships. Competitors were forced to order similar sized ships in an e ort to contest this advantage. Logistic providers were forced to rethink their competitive strategy by forming alliances that made increased cargo capacity feasible. ey now needed partners capable of collecting large volumes of containerized freight. Rapid globalization supported these investments because ship container capacity increased dramatically. e bene ts of using larger and larger container ships are reductions in the per-container cost to transport cargo, optimization of fuel consumption, and ocean voyage time reduction. ese gains in e ciencies result in increased generation of logistics productivity. e focus of economies of scale is not on total production cost but on cost per unit. Typically, as production volumes increase, the average product unit cost drops. As economies of scale drive demand for products higher, an increase in production power and higher material acquisition levels with increased material discounts that the supplier pass on to the enterprise occurs. Besides purchasing economies of scale, the economies of scale chain is made up of the technical, managerial, nancial, and risk economy of scales. All of these items help to make major contributions to the pro t of the international operation. Achieving technical economies of scale means maximizing the capability and e ciency of the operation. is requires investment in state of the art manufacturing techniques such as logistics information ow, inventory tracking, tracking shipments, and ensuring capacity utilization of state of the art equipment. In short, operational e ciency without investment110 in the most current and modern equipment creates a weak link in the economies of scale chain. Managerial economies of scale further strengthen the scale chain through the hiring of specialists and subject matter experts. At rst glance, this might seem like an added expense. However, specialists bring with them techniques that enhance e ciency beyond the norm. For example, managerial expertise in quality and lean manufacturing techniques improve the overall quality of a product. is activity translates into production increases that have the same level of inputs. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 7/15 4/26/2019 978194392633-9 Financial economies of scale concern the leverage of the capital resources of the operation. e operation is able to nance larger amounts of borrowing. Like anyone who borrows money, the banks require collateral. e more collateral, the more there is to nance at lower rates. A large amount of assets allows for lower borrowing rates. Another form of leveraging the operation’s capital resources is the raising of equity. Size matters. Larger operations have an easier time raising equity than smaller operations. Service fees for this type nancing are considerably less than banks or nancial institutions specializing in loans. Risk economies of scale essentially spread risk over a wide variety of activities. Activities include spreading the risk over a wide assortment of products. Product risks include marketing risk, price risk, lifecycle risks, quality risk, perishable goods inventory risk, on-time delivery of time sensitive inventory risk, such as seasonal products, and safety risk. Another activity to help spread risk is operating in multiple locations. Natural disasters and catastrophic infrastructure failures in recent years, such as the Japanese tsunami and factory collapses in Bangladesh, illustrate the all too vivid realities of these events. Nissan and Honda made the speediest recovery in the aftermath of the 2013 Japanese earthquake and tsunami. Collaboration with key suppliers helped their supply chain recover quickly. eir close cooperation stemmed from the fact that they had deep trusting relationships with their supply chains. Both companies maintained unprecedented visibility of their supply chains. An awareness of Japan’s susceptibility to natural disasters re ned their supply chain’s logistics risk strategy. ey ensured that their logistics chain were scattered in areas less prone to natural disaster areas. CASE STUDY: MAERSK LINE M aersk Lines is the world’s largest container shipping company. Their motto is, “Your Promise. Delivered. More than just three words.” What are the practical applications and goals behind these mottos? DISADVANTAGES OF INTERNATIONAL OPERATIONS Political Instability and Terrorism e overriding disadvantage of an international operation is the presence of political turmoil. Political instability and economic chaos seems to be the norm rather than the exception. Governments are weak, and they come and go. Attempts to bring order to economic anarchy are remedied by indirect expropriation, such as excessive taxation, capital controls, currency manipulation, and widespread corruption in the form of bribes and permits111 demanded by government o cials. e more direct form of expropriation is the outright nationalization of a foreign operation’s assets. Venezuela seized foreign oil assets in 2009. Even the mere threat of seizure sent shock waves through international operation concerns. Another threat, demonstrated by president Mugabe of Zimbabwe’s threats to seize the assets of Canadian gold miners in 2013, also had large repercussions. Governments often change the operating conditions after an international operation has made the investment. e international entity has no recourse because enforcement of the original investment is virtually impossible. Governments ignore international courts of law in the name of national sovereignty. ey lack any traditions of law that protect international operations’ assets, resulting in all too frequent supply chain disruptions. Today, international operations procure critical raw materials from all areas of the globe. Political instability can create global disruption and chaos. At times, raw materials are held as ransom as was the case when China began to curtail the export of rare earth materials used in manufacturing the batteries for the Toyota Prius and GM Volt. Regardless of the reasons given, curtailing access to this material was politically motivated. In play were internal dynamic political forces seeking China’s self-su ciency, an action that had military implications. e unpredictable political environment dismantles any semblance of order, and adoption of a new constitution becomes the convenient remedy. is happened in Venezuela. Instead of stabilizing any remnant of protection of international assets, the new constitution increased political instability. ere were massive labor strikes, a series of public protests, and even an attempted coup. e rise of terrorism has had an enormous impact on global operations. Terrorism is rooted in regional political and sectarian disputes. As terrorists rise in political standing and their in uence expands globally, many governments adopt the terrorists’ agenda as their own. Any remaining portions of the protection of property rights principles are abandoned. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 8/15 4/26/2019 978194392633-9 e key barometer to foreign direct investment (FDI) in operations is political stability considerations. Asia remains at the top of the list of regional continental investments with an in ow of $426 billion in 2013, headed by China, Taiwan, and South Korea. Latin America and Africa saw only small growth while geopolitical tensions in the Middle East and Eastern Ukraine contributed to an FDI out ow. Intellectual Property Besides the lowering and relaxation of trade barriers, the rise in the expansion of global operations was also driven by capacity constraints at home. Outsourced products are mature products that are in the OFFSHORING The process of relocating business decline phase in the product life cycle. e objectives surrounding an o shoring strategy are based on processes (this may include, extending the life of mature products and squeezing every ounce of pro tability out of the product production, or manufacturing) to another country with the before the product dies. As the product enters the declining stages, the product consumes increasing intent to reduce costs. manufacturing resources. Outmoded technology, ine cient processes, and diminishing material OUTSOURCING A form of availability become the main drivers to o oad these products to an o shore operation. a make-or-buy decision where Despite state of the art investments and ensuring modernity in o shore operations, why would an an enterprise chooses to purchase a good or service international operation not want to develop new products at the location? e answer is protection of from a third party that was intellectual property (IP). Whether a previously made on-site. company expands to Brazil, China, India, or Southeast Asia, intellectual property rights are always at112 NEARSHORING A form of outsourcing determined by risk. Although these countries and regions have statutes and various forms of regulations in place, geographical considerations in di erences in interpretation of intellectual property rights vary. which business processes are e Chinese legal system, for example, is deeply rooted in classical Chinese culture and philosophical moved to localities that are geographically nearer to the traditions such as Confucianism. Chinese legal traditions are very di erent than English common law procuring group. conventions. Adherence to Confucian philosophy is based on obedience and conduct, and recognition is seen in the enduring struggle of preserving resources, and this can be rationalized away by copying the master. e individual is responsible for his or her own conduct. erefore, misbehavior on the part individual is due to a failure of reaching some sort of accommodation or negotiation. It naturally follows then that organizations have little chance to enforce violations of intellectual property rights. In China, provincial authorities exercise signi cant authority on the establishment of a local operation. Contracts and agreements covering non-disclosure, IP, and UN based manufacturing human rights principles are signed all day long. Regardless of signed agreements and contracts in place launching the operation, protection from IP violations are not what they seem to be. Chinese authorities insist insertion of a clause that any contracts or agreements are subject to local “applicable laws.” Insertion of this clause opens the door to di erent sets of interpretations that are unfavorable to western traditional enforcement means. Cyber Security Critical to an operation’s viability is cyber security. In today’s world there are increased occurrences of data breaches. It is commonplace to hear of security breaches in government, defense, nancial, health, and retail institutions. Setting up an operation in a low-cost country involves a considerable commitment of resources. It involves wide-ranging cyber security measures that are similar to the home operation and, likewise, comprehensive in nature. Protecting essential data, such as employee communications and client and customer privacy, are indispensable in protecting the durability of the operation. ese are fundamental to an operation’s e ectiveness, pro t, and, most important, avoidance of business interruptions. Data privacy regulations in force in the European Union and the United States do not necessarily carry over to low-cost regions. Illegal access to proprietary data, equipment, and documents are often sanctioned by local authorities in the name of protecting political autonomy. In May 2014, ve Chinese hackers were indicted for hacking into major operations, including U.S. Steel, Westinghouse Electric, and Allegheny Technologies. ese intrusions occurred over a period of 8 years from 2006 to 2014. A Chinese national was indicted for hacking into Boeing from 2009 to 2013. is individual worked with other hackers (never identi ed) in trying to steal manufacturing plans for the F-35 and F-22 ghter jets. e old term “industrial espionage” takes on a more far-reaching undercurrent. ese attacks are not only aimed at gaining access to a company’s private data but have a larger purpose of uncovering and compromising an organization’s infrastructure. Because the o shore operation is part of this infrastructure, its operational strategy is undermined and destabilized. e severity and increasing rate of these attacks have far-reaching consequences and can disrupt continuing operations. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 9/15 4/26/2019 978194392633-9 Continuing operations implies levels of e ciency, competitiveness, cost control, and state of the art processes that enhance the113 quality of the product or the service. With a data breach, all of these fundamentals are compromised. Perhaps the most far reaching is the reputation of the operation. Customer con dence erodes as skepticism increases whether or not the operation is capable of protecting sensitive customer information. Without constant vigilance, it is far easier today for an operation to lose important information. e situation becomes more acute when the company is unable to discover reasons for underperformance. is is most likely due to an undiscovered data breach not detected until a considerable period of time has passed. With the damage done, most countermeasures are ine ective and have a poor remedy. Product Quality and Quality Service International operations experience their share of product and service quality problems. Poor product quality is grounded in the loss of control of the local supply chain. Poor service quality, on the other hand, has its origins in the absence of service quality training that in uences the quality of the delivered service. is shortsighted exclusion of service quality training is often deliberate and meant to attain cost savings. International operations must depend on a supply chain of limited capabilities. Limited capabilities are not only concerned with producing a quality component. Supply chains in low-cost countries do not have consistent and reliable quality assurance systems in place to support an international operation. A comprehensive quality system consists of corrective actions, preventative actions, records control, safety policies, and raw material or components inspection and certi cation structures. e local supply chain does not have formal processes in place. e quality of work subcontracted to external sources is by no means assured. ere are no provisions in place for veri cation, storage, reporting, and maintenance of the operation’s consigned material, equipment, and tools. As a consequence, defective product escapes become commonplace. Defective components assembled in the operation interrupts the assembly process and causes major disruptions in the product ow. When a defective product escapes the operations facility and reaches the customer, it may trigger major recalls, costing the operation signi cant nancial setback as well a bad reputation. An example of things going horribly wrong can be seen with the Mattel toy company massive toy recall in 2007. Nineteen million toys were recalled because their Chinese contractors and subcontractors used lead-based paint and used tiny magnets in a variety of toys. Due to inadequate quality assurance procedures governing manufacturing methods of their contractors in China, Mattel spent $30 million in the recall e ort. is reduced their quarterly income by almost 50%. Even though Mattel is one of the best managed companies in the world, this incident showed that even the most well-managed companies are vulnerable to business disruptions because of a due diligence gap. Repairing defective products consumes valuable operational resources. Although the originating supplier of the defective component replaces the defective component, the operation is still stigmatized and associated as being a source of poor quality. De ciencies in poor service quality are due mostly to cost cutting that, in-turn, creates a shortage of nancial resources for service quality training programs. e maturity level of service quality is a direct re ection on the operation’s responsiveness. Responsiveness is the most important114 metric in the operations’ balanced scorecard. It is a direct indicator of an operation’s reliability, integrity, readiness to o er solutions, and overall e ectiveness. Customers are quick to abandon products that have virtually no technical support. Secondrate shoddy solutions are simply not acceptable in a world where quality is a given. With e ciency being the dominant metric, present-day operational pressures divert attention away from acquiring and analyzing service performance data. is results in a scarcity of service quality awareness. Without awareness, service quality becomes unimportant as a viable attribute of the operation. Any improvement e orts are construed as undermining a substandard quality system deemed “good enough.” TYPICAL LOGISTICS CHALLENGES WHEN DEALING WITHIN COUNTRIES’ BORDERS e generally accepted de nition of supply chain logistics embraces the planning, implementation, and e cient control of the ow of goods and services throughout the entire supply chain. From its starting point at an operation’s facility shipping dock to the point of consumption, this journey is beset by periods of disruptions, delays, and setbacks. ese events interrupt the e cient ow of goods and services to their destinations, driving logistic costs beyond planned and tolerable levels. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 10/15 4/26/2019 978194392633-9 e leading reasons for growing global operational capabilities are expanding markets, increased sales, improved pro ts, economies of scale, competitive advantage, and absorption of capacity. What companies often miss in their planning is that the prevailing logistics infrastructure lacks robust components to support an operation’s facility. Logistics involves more than the transport of goods. Supporting infrastructures, such as information and communication, regulation and bureaucracy, energy supplies, and de ciency of trained employees, represent a critical source of underinvestment by the host country. Development of logistic competency is an important planning component and requires the recognition of major structural di culties. e in-place infrastructure is fragmented and creates all too common choke points that reduce leverage and lead to waste in the value chain. e most common reason for choke points is the lack of resources. One may not have enough time devoted to planning an entire distribution process. Others are attributed to unreliable freight CHOKE POINT A condition where any number of companies, freight shipped to the wrong location, weather and labor problems, and component shortages of material, shortages. equipment, services, or incomplete processes affect the completion of an operation. Poor Infrastructure ere are several contributors that add to the di culties of a poor transportation infrastructure. Beginning with geography and driven by the terrain, lack of adequate roads, bridges, railways, airports, and security slows down the speed and movement of goods. As movement slows, it creates bottlenecks throughout the supply chain. e objective of moving freight as rapidly as possible is to avoid costly storage of goods. is setback o sets one of the major objectives of the supply chain: lowering transit costs through avoidance of warehousing a product. Warehoused products extend transit time and leave the products susceptible to damage. Movement of material requires equipment that is suited to perform this function e ciently. Often, the equipment is old,115 underpowered, and poorly maintained. Frequent equipment failures contribute to missed port deliveries. Road transport may worsen the risk because long overland road hauls bring unexpected time delays due to the poor conditions and capacity limitations of the roads. Tra c delays and equipment breakdowns, tolls, and, if crossing a border, di ering tra c and control regulations are also problems. Missed delivery to a rail terminal also carries on-time delivery risks. Rail schedules are unreliable at best. Relying on rail transport in remote regions further adds to risk because equipment maintenance is poor and subject to mechanical failure. Upon arrival at the rail depot, the product may need to be shipped further to a warehouse or port. is additional transport adds time and cost, disturbing delivery timetables. Like rail transport, shipping routes and timetables are xed and in exible. Fuel surcharges, port fees, currency adjustments, and di culty in tracking goods are all disruptive logistical challenges that are associated with a country’s poor logistics infrastructure. Missing a delivery to a port can be an expensive undertaking and bring about costs that are not easy to recover. Current infrastructure limitations have an e ect on product lead times due to the unpredictability in the cycle times of the shipment. is triggers expediting e orts and alternative premium shipping methods that eat into the expected logistic savings. Laws and Regulations Government regulation and laws at the national, regional, and local level remains a challenge in most emerging economies today. e regulations tend to be multi-tiered structures that hinder the development of nationwide networks. ey may also di er from city to city, further fragmenting and inhibiting the linking of logistic infrastructures. Dealing with government agencies can be frustrating. ey implement day-to-day changes that trigger uncertainty and add complexity. Often, government imposed regulation changes place one agency in direct con ict with another. For example, in 2006 the Ministry of Commerce of China issued new regulations for export processing zones. is put them in direct con ict with China customs because they issued new regulations for bonded logistics parks that support export related handling activities. Bureaucracy gets in the way, and with the absence of consistent national regulations, ine ciencies are magni ed. Inland waterways are a signi cant means of transport simply because they precede any other modes of modern transportation. Like other modes of transportation, it has its limitations and lack of national regulations. ere are often no provisions or guidelines regarding the level of navigational capacity. Despite the increase in air freight, air space is constricted due to military restrictions. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 11/15 4/26/2019 978194392633-9 Unauthorized and ad-hoc border controls are triggered by corruption, imposition of fees, and customs duties that are di cult to eliminate. Any resistance to payment of these fees simply results in TRANSPORT MODES This is the methods by which a holding the goods hostage. Other border delays are caused by meager infrastructures that create serious freight is transported. There shortcomings in the synchronization of border agents’ e orts on both sides of the border. Access to are three types of transport modes: land (road, rail, and adequate power may also be the cause of delay in border crossings. With electricity being one of the pipeline), water, and air. fundamental substructures in the logistics industry, shortages often create instances where movement, inspection, and clearing of freight can only proceed during daylight hours. Even though China has made great strides in eliminating logistics obstacles, the country has di culty in keeping pace with the demands of swift globalization. Chinese transport policy remains heavily burdened with regulations; they restrain the dynamics that are inherently present in116 modern logistics infrastructures. Much work needs to be done in the interconnectivity between modes. is barrier is most visible in air and ports, the most critical points of connectivity. Inland infrastructures lag behind the coastal regions due largely to the rapid development of China’s east coast. Inland transportation modes are twenty years behind in development. Although inland investment is increasing rapidly, it will take many years to bring the interior of China to the level of its coast. Technology e principle emerging trend as a result of rapid globalization is the growth of e-commerce. In China alone, the e-commerce market size has expanded from $21 billion in 2008 to $300 billion in 2013. With 300 million online shoppers, the logistics challenge is immense. Logistics management is quickly becoming a competitive di erentiator with the enormous expansion of ecommerce. Major technological hurdles face logistic providers as they try to tackle growing freight volumes that have no end in sight. As freight volumes increase, logistic providers require unprecedented operational excellence. Lowest total landed cost is still the standard that most measure the e ectiveness of the supply chain by. Despite improvements in the logistics industry, providers still struggle with late deliveries, damaged products, and delivery and collection processes. ese processes are outdated, cumbersome, and simply do not work any more. Struggles in the last phases of the logistics chain, such as customer interface, present issues that may be impossible to resolve. A narrow approach, and likely the last resort to meet this challenge, is technology. e sheer size of global e-commerce calls for highly automated logistics systems. Super computer capabilities are required to process billions of transactions that are nalized in milliseconds. Building internal networks and nding experienced partners or nding partners with in-place networks is one way of leveraging technology. Although logistic technology providers may not be able to achieve logistics success overnight, nonstop integration of applications across the logistic chain is essential. Developing a logistic network means multiple levels of strong relationships throughout the chain must be built up. e limitations of existing logistics infrastructures are glaring. New business models are needed to meet the inexorable upsurge in demand. New core competencies are required to bring about the seamless interface between technology and the customer. One core competency that is crucial is product tracking. Continuous in-transit product visibility is one primary requirement that ensures critical monitoring of product location in the logistics chain. Undermining technology advances are energy problems that are commonplace throughout China. Two thirds of China’s provinces experience regular blackouts. ey have become commonplace and are considered routine. Depending on what city, blackouts sometimes occur in the middle of the workday for periods averaging 2 hours or more. e primary reasons behind the rolling blackouts are price-controls, power consumption due to uncontrolled growth, and an aggressive policy to shift away from fossil fuels. is has an especially crippling e ect on the coastal areas because the majority of companies are concentrated along the eastern seaboard. Power starved logistics providers experience normal information and technology gaps, leading to disruptions in communications. Subnational Logistics 117 ere is another dimension of international trade logistics that is seldom mentioned. Logistic planners tend to design and develop logistic infrastructures from a macro level perspective. Subnational logistics addresses connectivity of provincial and local territories within countries. Little attention is given to subnational logistics and its connectivity to the main corridors of global https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 12/15 4/26/2019 978194392633-9 logistic chains. A robust international logistics infrastructure assumes a strong connection to the local logistics chain. e e cient movement of freight within a country is just as important as the movement of freight between countries. A sturdy subnational infrastructure is especially important for economies that rely on agricultural exports. For example, where horticulture and shing industries are vital to the local economy, producers’ access to the national and global infrastructures is critical. ese products are the livelihoods of farmers who tend to pay higher transport prices because of poorly maintained roads. In India, for example, 70% of freight movement is transported by road. e roads are poorly maintained and heavily congested. Major highway arteries of India represent only 2% of the road network, yet they carry 40% of the freight. e alternative of moving freight by rail is not feasible because the railroad, a state monopoly, is losing business to roads. Cross-border cooperation is di cult, at best, especially if the country is landlocked. ese countries are dependent on third countries for access to the logistics infrastructure. Transit agreements are non-existent, so there is no integration with world markets. ey must cross borders multiple times and unload and reload freight due to di erences in customs documentation requirements, politically motivated restrictions, and health and safety regulations. Cross-border movement involves custom clearance and standardized conventions and regulations. e absence of procedural consistency and cross-border incompatibilities disrupts and slows the ow of goods across borders, resulting in increased cost. Unlike mature global logistics infrastructures, subnational infrastructures lack simpli ed cross-border clearance mechanisms, and this puts them at a severe disadvantage. ey are not able to participate and plug into the global infrastructure. e consequence of non-participation is a fragmented subnational sector. Negligible coordination e orts facilitate entry of small independent trucking companies with ad-hoc cost structures, inferior equipment, and ill-de ned service activities that are burdened with cost ine ciencies. ey do not have a perspective of the dynamics of the logistics chain. Logistics strategy is all about achieving market integration through the reduction of barriers. It is a collection of services with imprecise limitations that are focused on lowering the cost of doing business. Other Realities A precondition to achieving a competent logistics infrastructure is the presence of FDI. Most emerging economies have di culty attracting FDI for a number of reasons. Legacies of bribery and corruption, war, political instability, unstable currencies, lack of logistics training, a poorly educated workforce, and bureaucratic trade regulations, contribute heavily to the stunted development of FDI. e underlying problem is that they are infrastructures in their own right. e absence of these infrastructure substructures creates intractable barriers because the substructures are the preconditions for establishing a competent, functioning logistics infrastructure. Regulations rooted in cultural and provincial traditions thwart foreign businesses from managing and coordinating118 distribution. Instead, the government encourages partnering with an assortment of domestic distributors made up of state-owned companies, private exporters, independent entrepreneurs, and family-owned retail outlets, adding to the fragmentation and chaos of the market. ese conditions hold back FDI because rms have no desire to invest in nancially bottomless and underdeveloped substructures. Little incentives are in place to overcome delayed delivery of goods at higher costs. is model needs improvement. Governments do not seem to realize that often they are the source of a region’s non-competitiveness. Investments made for developing a capable logistics infrastructure is long-term. Most emerging economies face urgent economic di culties, requiring resolution for the fear of political instability. Resource limitations and ever mounting economic problems prevent these governments from developing any long-term planning. Chaos ensues, triggering the imposition of taxes, tari s, “facilitation fees,” quotas, and regulations perpetuating corruptive practices. e majority of emerging economies with legacies of colonialism have never enjoyed extended political stability. After World War II, the colonial powers were no longer able to sustain possessions of overseas colonies. e colonial powers were essentially bankrupt and were forced to grant these nations their independence. Little infrastructure development took place during the colonial period. Newly independent countries in Southeast Asia and Africa were left without any sort of economic infrastructure because their economies were stripped bare. After independence, the focus was not on globalization. Economic necessity forced attention inward. Economic legacies were entrenched in cultural and tribal traditions. As a result, these countries are deprived of modern economic development practices. ey lack a central economic focus and pursue policies that lead to frequent changes in government. e accession of a new government brings a whole new set of programs. Economic development is low in the priority because the political survival of the government is the overriding concern. Lip service is given to the establishment of a market economy while other centers of power promote protectionism. https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 13/15 4/26/2019 978194392633-9 DISCUSSION QUESTIONS Consider the following questions as you review this chapter: 1. Discuss the role of logistics in driving value. 2. There are three components in designing a robust global logistics strategy: people, process, and infrastructure. Assign and discuss three attributes of each component. 3. Similar to the logistics discipline, there are three global supply chain strategies that drive capability. People, processes, and infrastructure Assign and discuss three attributes to each component. 4. Achievement of world-class supply chain drives productivity increases across an enterprise. Discuss the requirements to achieve this high level of performance. 119 SUMMARY e application of rigorous discipline and coordination are the only means to achieve full supply chain capability. Operations management has undergone two phases of change to reach the strategic position that it enjoys today. e rst phase was largely transactional and tactical in nature. Supply chain management used to be an unfamiliar concept. Procurement and logistics focus was local and regional and was not much beyond this scope. Inconsistent processes and lack of training prevailed. Informal on-the-job training was commonplace. Technology systems to facilitate operational processes, supplier intelligence, and documentation were severely limited and highly variable and inconsistent. Logistics was known by another name: tra c. e designation of tra c reinforced the concept that procedures were locally developed and often undocumented and outdated. Logistics was considered a stand-alone function relegated to the backwater of the procurement function. Compliance was di cult to measure and often had no connection to the operation. Metrics to gauge the state of the operation were non-existent. e current phase of logistics is predominately strategic and sustains world-class maturity attributes. Today, operations is in possession of well-documented global processes that are supported by tools and training. Metrics measure outcomes that are highly repeatable and predictable. Global process owners are clearly identi ed, and processes are highly integrated across the entire enterprise; they are closely interconnected with other enterprise processes. Training and development is well documented and refreshed regularly while personal development is linked to competency. Consistent metrics are de ned and measured globally and are aided by modern tools supporting real-time global analysis that are future-action oriented. REFERENCES Azzimonti, M., & Sarte, P. G. (2007). Barriers to foreign direct investment under political instability. Economic Quarterly - Federal Reserve Bank of Richmond, 93(3), 287–315. Retrieved from http://search.proquest.com/docview/204755669?accountid=26967 Burke, H. (2007) Mattel recall of lead-tainted Chinese toys cost $30 million. Retrieved from http://www.bloomberg.com/apps/news? pid=newsarchive&sid=ah7cuhojMidI Chapman, B., (2014). Moving operations or functions to a new country? ink long term. Retrieved from http://deloitte.wsj.com/riskandcompliance/2014/04/30/moving-operations-or-functions-to-a-new-country-think-long-term/ Drikhamer, D. (2007) India gears up: India’s logistics challenge in a nutshell. Retrieved from http://www.jdmandassociates.com/pdfs/2007_05_SEKO_LT_India_Gears_Up.pf Goh, M., & Ang, A. (2000). Some logistics realities in Indochina. International Journal of Physical Distribution & Logistics Management, 30(10), 887– 911. Retrieved from http://search.proquest.com/docview/232586603?accountid=26967 https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 14/15 4/26/2019 978194392633-9 GOV.UK. (2012). Transport and distribution for international trade – Detailed guidance. Retrieved from https://www.gov.uk/transport-and-distribution-forinternational-trade Ingersoll, R. (2009). Global Supply Chain Essentials I Davidson, NC: Author. Kearney, A. T. (2014). China’s e-commerce market in 2014-Full report. Retrieved from https://www.atkearney.com/paper//asset_publisher/dVxv4Hz2h8bS/content/chinas-e-commerce-market-the-logistics-challenges/10192 Knigge, R. (2013). Freight forwarding and logistics: What the high performers know. Retrieved from http://www.accenture.com/us-en/outlook/Pages/outlookonline-2013-freight-forwarding-and-logistics-what-high-performers-know.aspx Kunaka, C. (2011). Logistics in lagging regions: Overcoming local barriers to global connectivity. World Bank. Retrieved from http://openknowledge.worldbank.org/handle/10986/2543 License: CC BY 3.0 IGO. Maersk Line. (n.d.). Shipping services. Retrieved from http://www.maerskline.com/en-us/shipping-services/your-promise-delivered/your-promise120 delivered/overview Material Handling & Logistics. (2004). Ten key challenges for the Chinese logistics industry. Retrieved from http://mhlnews.com/global-supply-chain/ten-keychallenges-chinese-logistics-industry. Mentzer, J. T., Stank, T. P., & Esper, T. L. (2008). Supply chain management and its relationship to logistics, marketing, production, and operations management. Journal of Business Logistics, 29(1), 31– 38. Retrieved from http://search.proquest.com/docview/212664362?accountid=26967 O’Riordan, A. (2013). Winning in emerging markets: Understanding the barriers. Retrieved from http://www.accenture.com/us-en/blogs/life-sciencesblog/archive/2013/05/21/winning-in-emerging-markets-understanding-the-barriers.aspx. Porter, M. E. (1998). Competitive advantage: creating and sustaining superior performance (1st ed.) New York, NY: e Free Press. e Costco Connection. (2015, May). 30(5). Retrieved from http://www.costcoconnection.com/connection/201505#pg1 Value analysis. (n.d.). Retrieved from http://syque.com/quality_tools/toolbook/Value/value.htm Walters, R. (2014). Cyber attacks on U.S. companies in 2014. Heritage Foundation. Retrieved from http://www.heritage.org/research/reports/2014/10cyberattacks-on-us-companies-in-2014 Material is protected by copyright. Juliana, Wilkerson #133099 julianawilkerson@gmail.com The Fundamentals of Supply Chain Management Publizard https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_9_xhtml 15/15 4/26/2019 978194392633-10 CHAPTER 7: INTERNATIONAL AND FUNCTIONAL AREAS OF SUPPLY CHAIN 122 T he international enterprise of the 21st century necessitates maintenance of a wide spectrum of core competencies to sustain the ability to compete on a global basis. ere are very few companies left in today’s world whose operations are exclusively domestic. Essential to contemporary business strategies are policies that include sourcing and sale of products in international markets. Companies whose business objectives stubbornly cling to strictly domestic trade goals are destined to descend into a state of xed in exibility from which there is no recovery. eir fate is to end up with all the other relics of ossi ed companies not able to adjust to competition emerging from every corner of the globe. Not being a ected by international concerns is impossible due to supply chain and customer interface. Today, the key to competitive participation in worldwide business is putting into practice and123 synchronizing enduring supply chain management processes. e essence of competitiveness is speed to market, regardless of the length of the supply chain. Upgrades mean considerable investments in management processes. It means reorienting the enterprise from a narrow set of supply chain https://ebooksbvd.my-education-connection.com/read/9781943926336/9781943926336_10_xhtml 1/15 4/26/2019 978194392633-10 functional responsibilities, such as materials handling and warehousing, to a wide spectrum of functional areas. QUESTIONS TO CONSIDER Consider the following questions as you discuss this scenario: 1. How does supply chain volatility affect its ability to respond in an effective manner? 2. How does the enterprise meet competition from emerging economies that do not pay the same wages and bene ts? 3. How does the supply chain respond to ever increasing demands to reduce product lead times? 4. What needs to be done to control cost of goods, inventory, and transportation? KEY TERMS ➤ bullwhip effect (p. 125) ➤ center of excellence (COE) (p. 126) ➤ cross docking (p. 136) ➤ digital warehouse...
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Running Head: MCDONALD’S INTERNATIONAL SUPPLY CHAIN MANAGEMENT

McDonald’s International Supply Chain Management
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MCDONALD’S INTERNATIONAL SUPPLY CHAIN MANAGEMENT

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McDonald’s International Supply Chain Management
McDonald’s is currently the leading global corporation in fast food service. The company
was started in 1948 by Dick and McDonald. The company maintains its competitive advantage
through constant innovation and the addition of new food items to its menu. Each of McDonald's
restaurants is designed to be operated independently. After experiencing rapid growth in the
United States market, the company ventured into the global market by targeting different regions
(Gheribi, 2017). It recorded success in Canada and the United States. However, the Netherlands
and the Caribbean posed serious challenges as the company tried to customize its international
standardized de...


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