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Global Supply Chain Management
Welcome friends, welcome to the course of International Business. Today we arestanding in a very difficult time so there has been lot of supply chain, disruptions andthere have been numerous you know difficulties due to the recent attack of the coronavirus the pandemic which has occurred to the world. So, now, at this moment the worldis seeing a difficult time right.In last lecture we were discussing about you know the how companies would marketglobally their products. So, during that session we discussed about the importance ofmarketing and how companies would segment on country wise or on product wise regionwise how they would you know segment the markets right.And after that we also discussed about the 4 ps of marketing like what should be theproduct when you talk about global markets, what should be the you know how thepricing should be designed, how the promotion should be made and how the distributionshould be done? We had briefly discussed right in the last session.So, today we will talk about one of the most important aspects or one of the mostimportant factors that affects the global you know international business which is calledthe global supply chain management. So, today’s topic of discussion is global supplychain management. Now, let me start with a small example I am sure you must have all Ithink whoever is listening to me everybody must have heard of the company calledApple right.So, Apple is one of the most the profound one of the most successful companies in theglobe. And today it has it can be easily said to be successful just because one majorreason is it is successful supply chain management system right. So, what exactly isApple and let us talk about the case of Apple to start with and let us discuss it.(Refer Slide Time: 02:29)So, as you can see Apple was founded initially by Steve Jobs the most popular name if Iever talk of in a business circle people always talk about Steve Jobs and Apple right.So, Steve Wozniak and Ronald Wayne in 1976 Apples strength was designing newproducts. So, it has been always a very innovative company and it has always come outwith ah a very new product right to the market. For example, they came with the iMac,the iPad, iPhone, the Apple watch, Apple TV, and Apple music. So, there were some ofthe very profound products of Apple.In 1997 Tim Cook joined Apple right and today Tim Cook is the CEO of Apple. Andwhen he joined he is considered to be a supply chain expert, he found that Apple wasgoing through several manufacturing problems, excess of inventory was a problem andwhich had a drag on the profit and cash flow right.So, what happened was Cook had to now correct this issue correct this problem; whichApple was facing. So, Cook developed very strong supplier relationship with the Asiancompanies and outsource its products from companies like Foxconn which is one of thelargest manufacturers for apple. But in the process there were several PR issues alsoduring you know these outsourcing process many the contract manufacturers used tohard press their workers and there are cases of suicidal also which Apple had to face thebrunt.But among all this Apple saw an opportunity also because it saw that the Asian economywas growing and it had a large market. And as well as what was happening is it wasthere are there was a high labor you know there was a low wage you know economy.Similarly, if you see there are several such stories for example, Samsonite, if you talkabout Dell, you talk about you know the there are several Ford example. So, there areseveral companies and most of these companies have been successful just because theyhave been able to manage their supply chain very well right. So, what is this supplychain all about and why it is important in international business?(Refer Slide Time: 06:45)Supply chain management as defined is the management of the flow of goods andservices and includes all processes that transform the raw material into final productsright. It involves the active streamlining of a business supply side activities to maximizethe customers value and gain a competitive advantage in the marketplace. So, what itsays is supply chain management is the process of which where the flow of goods andservices and it includes all the processes that even transforms the raw materials.So, even operations can also be considered to be a part of supply chain although it is avery debatable thing some books would say some things and you know that operations isdifferent, but if you understand supply chain is a holistic approach. It covers everythingfrom; the inbound logistics, to the transformation of raw materials, to the outboundlogistics everything.SCM represents an effort by suppliers to develop and implement supply chains that areas efficient and economical as possible very rightly somebody had said that you knownowadays companies are not competing anymore. In fact, the supply chains of thesecompanies are competing against each other right. So the supply chain s covereverything from production to product, development to the information systems, neededto direct those undertakings everything right.(Refer Slide Time: 08:01)So, this is how an integrated supply chain and operations model look like. So, if you lookat the supply chain management. So, this is the supply chain management right. So, theglobal supply chain strategy the entire global supply chain strategy and this is thelogistics and quality management right.So, what it is saying is this is the improving this is innovating and impacting and this isintegrating. So, so now, what it is saying the arrow is in two continents is headingtowards both directions. So, this is the if you look at this is the downstream processwhich is the customer relationship. So, the when you move downstream; that means, youare moving towards the customer and towards the upstream is the supply managementright and this is the operations in between.So, downstream is generally you know to if you understand it downstream and upstreamit is like you know to understand how to manage the entire value chain downstream andupstream when we talk about; so it is like managing the entire value chain. So, this talksabout this model this method talks about how the global supply chain strategy ismanaged by companies. So, the supply management issues are there, then operationmanagement and the customer relationship management issues. All three of them whenhandled together it creates an integrated supply chain and operations model.(Refer Slide Time: 09:17)How the supply chain management works now? Now, typically if you see SCM attemptsto centrally control or link the production shipment and distribution of a product right.Many a times people confuse as if supply chain is only distribution, but that is not correctright. It is rather a more holistic one and it is a it is in totality one has to see. Bymanaging the supply chain companies are able to cut excess cost and deliver produce tothe consumers faster.So, if as I said if today companies are not fight competing against each other, but thesupply chains are competing and whoever has a very efficient and flexible supply chainor an efficient supply chain that company would do better than the others in the samemaybe you know even the industry.So, cutting excess cost and delivering products to the consumer faster is the goal ofsupply chain. So, this is done by keeping tighter control of the internal inventories,internal production, distribution, sales and the inventories of the company’s vendors. So,when you talk about supply chain or when we understand about supply chain; pleaseremember that today supply chain management is so interlinked that today themanufacturer and it is vendors they are it is like you know they work in unison right.So, the vendor even manages the inventory for the buyer this you know the buyer. So,vendor understands when the management the companies the producers you knowinventory, what is the level of his inventory, and how much it is down and accordinglyhe would you know make his supplies right. So, SCM is based on the idea that nearlyevery product right that comes to the market results from the efforts of variousorganizations.So, today as you can see if you can think of any product that you can talk right forexample, let us go back to the Apple you know an iPhone. Now, if you see an iPhone; itis not that the iPhone is you know made up of only you know products from onecompany there are several products from several countries involved in making of theiPhone. For example, there are some products from China; there are some products fromTaiwan and some from the US itself.So, in if you see there are several organizations involved and when several organizationsare involved; obviously, the complexity would be very very high. Because they are indifferent time zones, they are the distances you know they are far of from each other andtheir cultural activities the cultural behaviours are different. So, how they work and whatto what is the perception of quality perception of timeliness; so all are different right.So, in accordingly when so much of complexities are there it becomes very important forthe company to integrate and work and take it together right. All though supply chainshave existed for ages most companies have paid attention in the near in the only in thenear time in nearby time right.So, in SCM the supply chain manager coordinates the logistics of all aspects of thesupply chain right which consists of five parts; what are the five parts? First the plan orstrategy right. So, what is the plan? What is the strategy or action that should be takenright. What are the sources of the raw materials and services right; they have tocoordinate they have to first coordinate the plan, then coordinate the source of rawmaterial and services then coordinate the manufacturing process which is focused on theproductivity and efficiency.Then focus on the delivery and the logistics generally when we talk about logistics we.Generally mean you know the movement of the goods logistics when we talk aboutlogistics we mean the movement of the goods. So, how would you deliver the productsand how would you manage the logistics how would you keep a control of the logisticsfor example. And finally, the return system or we also term it as the reverse logisticsright. So the written system for defective unwanted parts if suppose there are someproducts which are broken or something was damaged or something in that conditionthey have to be brought it back right. So, this process is a very costly process and there.So, companies have to ensure that it is minimum. So, to ensure it is minimum first of allyour production should not have a defects itself. So, first is to minimize your defects andonce if you have some defects; how do you bring it back at a minimum cost. So, thisreverse logistics cost has to be decreased also right.(Refer Slide Time: 13:37)So, now, once you have understand the supply chain. So, at this point of time we have orwe can understand that supply chain is an integral or a very in complex matter becauseevery company whatever they are making they are using several different components init.Maybe for example, let us take a large machine; now this machine might have 50products and this 50 products might be available in different places right as I said forApple. Now, getting the raw material and adjusting it is to it is production line and youknow assembly making the assembly and doing everything is a challenge right. So,supply chain management is become the factor which has which becomes a decisivefactor for companies to be successful or not successful.Now, after this we will talk about the global production and distribution. Now, in today’seconomy right firms must decide few things like for example, what is the location of theproduction productive activities. So, a company has several productive activities forexample, the sourcing of the raw material, the production right itself, and managing thewarehouse, or material management. So, there are several things which are ofimportance.Now, so when you are talking about to make a firm a profitable or the successful thefirms must decide the location of the productive activities this is the first thing. Then itshould talk about the long-term strategic role of foreign production sites. Now, supposefor example, you see today’s most of the you know MNE’s MNC’s they are producingtheir products in the in countries like; Taiwan, Philippines, Mexico, India, right Chinaand all.So, how right is it? For example, during the recent you know outbreak of the corona itwas seen that too much of dependency on China became a major factor or a majordisturbing factor for the companies because their most of the supplies were now blockedbecause of the outbreak of corona in Wuhan. Now, so that is a very dangerous thingbecause when you have one you have too much of dependency it could be a strategicfailure right. Then the question is whether to own foreign production activities oroutsource those activities.So, that is also what the companies have to look at; should they maintain it themselves,should they produce it on their own, or they should control it or they should completelydepend on the you know vendor and believe in the vendor which items should beoutsourced and which ones should be kept with them right. How to manage a globallydisperse supply chain and what is the role of internet right in managing this globallogistics.So, today thanks to internet and the growth of online systems that it has become veryefficient and very simple to manage this global supply chain right. Otherwise imagine acompany making any product which has almost 100 items components and it is being letus say gathered from 20 different countries or 30 different countries and ah there couldbe multiple vendors also among them. So, if you do not have had the you know internetbackup right in such a condition it would have been nearly impossible very very toughright.So, that is why you know it is not a very great thing to understand that in the past supplychain efficiency was very poor right which has grown significantly and tremendously inthe in today’s time right.(Refer Slide Time: 17:21)Whether to manage global logistics or outsource so; this is a similar point. So, thecompanies have to understand this what they have to do right. So, should they control theactivities by themselves or should they depend on the outsides vendors’ right. Now, whatshould be the manufacturing strategy? When you talk about international businessinternational business is not about only selling it is about even producing and then sellingit at a effective you know way in effective way.So how does manufacturing going to affect international business? So, let us seesuccessful success of global operation strategy depends on the compatibility,configuration, coordination, and control. So, the any global operations strategy willdepend on these factors; how compatible is it to use various let us say components.So, suppose you are using different machinery different technique technology. So, arethey compatible? If they are not compatible maybe the end result might be poor. Thenthe configuration right the how is the specification the configuration; how do youmanage it, how do you coordinate this entire process and how do you control them.So, so let us see one some of them. So, when you talk about compatibility it is a degreeof consistency between the foreign investment decision and the company’s competitivestrategy. So, low cost or differential strategy for example, a company can have a low coststrategy, a company can have a differentiation strategy right.So when I when you say low cost strategy; that means, what a company produces inhuge bulk and then sells it at a low price right it destabilizes the market through the helpof an low price system. So, for example, most of the Chinese companies have been doingit for the last many years; they have been producing at low cost and supplying it to theworld right. So, and the companies have been even ready to buy almost most of theirproducts from China right.So, we you talk about this compatibility what issues come into let us say for example,efficiency or cost. Now, cost minimization strategy, offshore manufacturing, hightraining cost, risk of stock outs, and high inventories. So, when you are talking aboutcompatibility right so first point that comes under compatibility is efficiency or costefficiency you can say. So, cost minimization becomes one of the core points for anycompany to be successful.So for example, if cost minimization is the core you know idea then the company may gofor offshore manufacturing; that means producing it is in some third country right; Butand it could also you know be subjected to high training costs because suppose you areyou know producing it in a country like let us say Malaysia, or let us say Sri Lanka, orBhutan. Then maybe the training cost would be very high and there could be a risk ofstock out, maybe there could be a quality issue, or high inventory issue. So, managingthis becomes very important for the companies right.Second thing is that when you talk about the manufacturing strategy you need tounderstand [FL] whether how important is this point of dependability; what do you meanby dependability? So, when you are talking about supply chain and you as I said youthere is a very complex system you are getting products from several countries andseveral vendors.So there might be a problem right that some vendor are not able to deliver it on time ormaybe deliver it on the with the right quality. So, dependability becomes also animportant part of the strategy when you talk about global manufacturing system. So, forexample, prompt deliveries, availability of components in time, reduce the supply chainlength; trust in the quality and price promises.Will the company will the vendor supply me at the price as we had discussed earlier; willit keep the price promise the promise, will is it is quality trustworthy right. How do Ireduce the supply chain length? Because if I cut down the supply chain length bytechniques; for example, like through modular, manufacturing processes, or through youknow integrated ah internet online systems. So, we can reduce it, but then how efficientlythe each you know the both the parties are reacting to itThen it is quality right and their important part is the quality. So, when I talk aboutquality we will talk about the performance reliability, good service good maintenance.Most of the most important thing when you talk about manufacturing because inmanufacture when you talk about manufacturing you generally talk about the industrialmarketing you know the big machines and all. So, these processes have to be very highlyreliable because you see there are lots of components in a machine.For example, you talk about a laptop now there are so many components and if eachcomponent just works at even 99 percent efficiency and there are 10 components. So, theoverall reliability of the entire system will go very much down because 0.99 into 0.99into point 9 if you do it 10 times it will be very less right. So, and just imagine there arenot 10 components in a even a computer there are much much more right.So sometimes if a small you know you know even reliability issue can at the end becomea major problem for any company right. So, so the performance reliability and how doyou what is the kind of service being produced or provided by the vendors is a very keyquestion right.The next is innovation now today everybody’s talking about innovation and innovationhas also become a very important part it was always there, but with today with thegrowth of technology and you know internet systems and all innovation has become amore discussed and more hot topic right. So, how do we develop new products and ideasright; how do we generate new products. Suppose there is a condition in which we do nothave time right for example, the corona pandemic how do you innovate a new productwhich can tackle this problem.So these are issues where innovation becomes say how do you innovate to even survivefor example, many companies lost their businesses. Now in such a condition how wouldthey survive. So, what innovation can they do is a very important question andcompanies tomorrow would survive if they are innovative right if they are not innovativeit becomes very difficult for them to survive.Finally, flexibility right the variety of products right and how to adjust the productvolume. So, how flexible is a company also is very important part of the manufacturingstrategy. So, is the company flexible does it have sufficient variety of products to attractthe customers? And how does it adjust the products production volume because supposethere are 20 products in the production line the company is manufacturing. Now, forexample, there is a company called Avon right Avon manufacturers cosmetics and itmakes there are number of different products with Avon right.Now, the question is how does Avon maintain the volume of production? Because insome countries one produce might one product might be in demand and others might notbe some other products. And in country b the you know the first product which was indemand in let us say country might not be in demand in country b. So, it becomes verydifficult to forecast and manage the entire process. So, these are some of the problemsthat are during manufacturing the company faces.(Refer Slide Time: 25:09)Now, another point when you talk about the manufacturing strategy is the configuration.Now what is manufacturing configuration? Now the question here is how to configurethe entire manufacturing system right; the process. So, there are few points we willdiscuss for example, do you does the company should the company go for a centralizedmanufacturing system, should it go for a regional manufacturing system, should it go fora multi domestic system, how should it do, how should it coordinate the process, andhow should it control the process.So, when you talk about let us say centralized manufacturing ok. So, when you talkabout centralized manufacturing a company might have production in one central placeright to in the home market and then it would export the production to the other marketsright sometimes it goes for a regional manufacturing. Because centralized manufacturingmight not work in some cases because the cost of supply chain might become very highright and even the raw material cost might be very high.So, regional manufacturing is a next step where in different regions the country can thecompany can produce. For example, it can produce in a country which is closer to theyou know home or the largest market. So, that you know it can take advantage of the lowcost of wages maybe the low cost of you know or the expertise of the skill of the workersall these things they can take advantage. So sometimes the companies also go for aregional manufacturing system right.And then finally, some MNE’s MNC’s go for a multi domestic manufacturing; thatmeans, they say they have to be close to the customer. So, it is better to have a localproduction system. So, if you have a local production system you can easily keep a trackof your customers and accordingly you can be very flexible as to what the customerdesires and you can make a change right.Finally, is the to coordinate the entire process and to control the entire process. So,organizations have been doing everything to do all this. So, that they do well right and allthese things when they when somebody does well affects the; obviously, theinternational business performance.(Refer Slide Time: 27:18)Now, when you talk about IB international business another important thing that needs tobe discussed is global sourcing. Now, first of all what is sourcing? Sourcing is theprocess of making the raw material available right. So, as I said an Apple iPhone mightbe having let us say 20, 30, 40 components right. So, all these components are comingfrom different places and let us say you are getting one product let us say from maybemultiple countries multiple vendors. So, this becomes a very complex issue as I saidbecause of the cultural, time, distance, issues, right.So, what is saying what is global sourcing global sourcing refers to the buying of the rawmaterials or components that go into a company’s products from around the world notjust from the headquarters of the country. Example you see star bucks buys it is coffeefrom locations like Columbia and Guatemala right. And this is not all this is only a smallportion of you know what star bucks does.So, this is for a company like star bucks who’s makes coffee, but what about a you knowa company which makes let us say like let us say Caterpillar who makes an earth movingequipment and where there are large number of components or parts involved in it. Theadvantages of the global sourcing are quality and lower costs. So, global sourcing ispossible to the extent that the world is flat. So, it says that you have to assume that theworld is flat. For example, buying the highest quality cocoa beans for making chocolateor buying aluminium from Iceland where it is cheaper because it is made using freegeothermal energy.So, as very rightly Jack Welches of G E had said now it is a boundary less organizationeverything is the systems are boundary less. So, the world has become like one globalmarket. So, in such a condition we have to see where we can get the raw materials at thecheapest price and the best quality. And if it is available then we have to source it fromthere in order to make the best product out of it right some, but there are issues it is notthat you know global sourcing is devoid of issues.(Refer Slide Time: 29:34)There are major issues with associated with the global sourcing for example, how do youcontrol the quality. So, you cannot have a you cannot have a very significant control it isyou can have, but it is very difficult right. How do you build relationship with thevendors? Because there are language barriers, there are cultural differences, there areclimate and time differences, and there is an distance issue right.So, all this makes you know a global sourcing a very tough job right. So, but whatever itis today if companies have to survive if they have to survive in tough times they cannotignore global sourcing because they have to get the best of the product from the maybethe farthest point.But if it is available at a cheaper price cheaper in the sense the distance travel costs mightbe high the transportation cost, but because the production of the some raw material isavailable cheaply in that particular place the cost of production is low. So, if you make atrade off the total value the total cost might be coming less although the product which iscoming from a far of distance. So, all these problems have to be very carefully thoughtover and then global sourcing has to be done.So, what I will do is I will wind up here today. And we will continue from here in thenext lecture and we will try to discuss more about the global supply chain managementissues and how it affects the international business; right.Thank you very much for the day.