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Global Supply Chains

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					APEC e-Trade and Supply Chain Management Training Course
(Phase III: Logistic Management for SMEs)



The Establishment of Global
Supply Chain




  November 9th, 2010
    Hong Kong China


             Eric Futin
Agenda


         Prologue: The International Context

         A.   Roadmap to Global Supply Chains

         B.   Objectives of Global Supply Chains

         C.   Characteristics of Global Supply Chains

         D.   Benchmarking the Global Supply Chains

         E.   Global Supply Chains Management and
              the Role of Logistics

         F.   Global Supply Chain Management in the
              future

         G.   Beyond Global Supply Chains: Global
              Value Chains

                                                        1
Agenda


         Prologue: The International Context

         A.   Roadmap to Global Supply Chains

         B.   Objectives of Global Supply Chains

         C.   Characteristics of Global Supply Chains

         D.   Benchmarking the Global Supply Chains

         E.   Global Supply Chains Management and
              the Role of Logistics

         F.   Global Supply Chain Management in the
              future

         G.   Beyond Global Supply Chains: Global
              Value Chains

                                                        2
   Supply Chains become more Internationally linked




                                                  3
Source: OECD (2007)
   Trade has grown faster than GDP

               Average of exports and imports as a percentage of GDP, 1980 and 2008




                                                                                      4
Source: OECD (2010)
   Intermediate trade has become more important?

                           Share of intermediate trade in total trade, OECD

                               Intermediate to total trade - Goods          Intermediate to total trade - Services

          100%

           90%

           80%

           70%

           60%

           50%

           40%

           30%

           20%

           10%

            0%
                 1995   1996    1997      1998     1999     2000     2001     2002     2003      2004      2005      2006   2007




                                                                                                                                   5
Source: OECD (2010)
   Intermediate trade has become more global (1)

                      Intra- and inter-regional imports of intermediate goods
                                                (Billion USD, 2005)




                                                                                6
Source: OECD (2010)
   Intermediate trade has become more global (2)

                      Intra- and inter-regional imports of intermediate services
                                         (Billion USD, 2005)




                                                                                   7
Source: OECD (2010)
   Trade within industries…

                Index of intra-industry trade in manufactures, average 1997-2008




                                                                                   8
Source: OECD (2010)
   … and within firms

        Share of intra-firm exports in total exports of affiliates under foreign control, 1997-2007
              %
                  90
                                     Sweden
                  80

                  70

                  60                  Netherlands                    Israel
                                                                                                    United States
                                                                                            Italy
                  50

                  40
                                                                                        Poland
                  30
                                              Japan
                  20

                  10

                   0
                       1997   1998    1999    2000    2001   2002   2003      2004   2005      2006        2007

                                                                                                               9
Source: OECD (2010)
   … and increasing international sourcing of
   Intermediates

                      Imported intermediates/domestic intermediates


         %                                   1995   2005
             30


             25


             20


             15


             10


             5


             0




                                                                      10
Source: OECD (2010)
  How imports can distort competitiveness figures (1)

                      Contribution to the manufacturing trade balance, 2008




                                                                              11
Source: OECD (2010)
   How imports can distort competitiveness figures (2)

                      Import content of exports

                                 1995   2005
           45%

           40%

           35%

           30%

           25%

           20%

           15%

           10%

            5%

            0%




                                                   12
Source: OECD (2010)
   How imports can distort competitiveness figures (3)

                             Import content of exports with partner countries
                      From Europe   From NAFTA     From East Asia   From Other Asia   From RoW

             45%

             40%

             35%

             30%

             25%

             20%

             15%

             10%

              5%

              0%




                                                                                                 13
Source: OECD (2010)
Agenda


         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       14
What are Global Supply Chains



 Global Supply Chains (GSCs) are worldwide networks of
 suppliers, manufactures, warehouses, distribution centers and
 retailers through which raw materials are acquired,
 transformed and delivered to customers

 (OECD, Supply Chains and the OECD Guidelines for Multinational Enterprises,
 2002)




                                                                               15
Globalization has changed the way firms do
business…

  Since the end of WWII, the importance of trade and international investment has
    grown steadily.

  Large multinational firms have become the main players in all major sectors.


  Through FDI and international mergers and acquisitions, they were able to jump
    tariff barriers and tap into natural resources, labour, and technology, around the
    world.

  Production chains were traditionally vertically integrated, i.e. multinational firms
    owned an entire production process.




 But recent phenomena are fundamentally changing the way global firms operate.




                                                                                          16
 … driven by key factors

 Rapid technical progress
                                        12

   Low and falling telecommunication   10
                                                    Cost of 3 min. call
                                                    to U.S. ($U.S.)
                                                                                            Africa
                                                                                            Amer-South

     costs                                                                                  Asia&Pacific
                                                                                            Europe
                                        8                                                   World
   Technological advances
                                        6

   Falling transportation costs        4


                                        2


 The adoption by a large number of     0

  countries of more open economic            1996    1997    1998      1999   2000   2001       2002       2003

                                             Source: IFS V5.28, WDI CD 05.
  policies
   (e.g. lower tariffs, lower FDI
                                                     Average Tariffs
     restrictions)


 The emergence of developing, low
  wages economies


    Goods and services can be                                                                                     17
    delivered globally at lower cost.           Source: Yi (2003)
GSCs are becoming increasingly important

    GSCs have existed as long as trade in intermediate products has
     taken place, but they are now increasingly important.

    World exports and FDI outward stock has been growing faster than
     global GDP


    Foreign affiliates (FA) no longer only engage in serving local
     markets in host countries but often export more than host country
     domestic firms




                                                                         18
…while technology is changing the way firms do
business…

   Technological advances, particularly in ICTs, have enabled a
    better coordination of activities between different links in the
    chain through logistics.

   Technologies are used to undertake joint design, to coordinate
    shipping in just-in-time systems, and to manage inventories in
    real-time.

   There is rapid growth in Supply Chains and Logistics Services.




                                                                       19
… giving rise to GSCs as a more established way of
doing business.

  In recent years, we have seen a change in how firms organize their
   production into global supply chains:
    Firms are increasingly outsourcing some of their activities to
     third-parties.

  They are locating parts of their supply chain outside their home
   country (offshoring)

  They are increasingly partnering with other firms through strategic
   alliances and joint ventures.

  Smaller firms and suppliers are now becoming global


  These new business strategies have allowed firms to specialize on
   “core” competencies (vertical specialization) to sustain their
   competitive advantage.                                                20
Offshoring is gaining importance…

 Companies now offshore
  more activities, both in terms
  of size and scope

 Business process
  outsourcing (BPO) and
  information technology (IT)
  services are supplied from a
  large number of locations

 Some firms also offshore
  other high-knowledge
  activities such as R&D.




                                    21
… strategic alliance are on the rise…

   Worldwide, the number of new strategic alliances (both domestic and
    international) have significantly increased in recent decades.

   Alliances are seen as crucial in GSCs to facilitate entry in new markets,
    commercialize products, share risk and costs, including for R&D.

   The top four industries for alliances are: Business services, financial
    services, retail trade and software.




                                                                                22
… and ownership is evolving.

   Production chains used to be almost exclusively owned by a single
    multinational.
     Today, the trend is toward multiple ownership of complex supply chains,
       where several business partners are located in different countries.


   This trend is prevalent when:
     Products or activities can easily be defined or standardized
     The technology can be protected or is difficult to copy
     It is possible for business partners to write and enforce legal contracts.
     It is possible to monitor (to a certain extent) the activities of business
       partners


   New technologies such as ICTs, modern transportation and
    communication infrastructures, and establishment of international
    (e.g. WTO) have facilitated the emergence of global supply chains.

                                                                                   23
Key enablers of Global Supply Chains

   Globalization, falling transportation and telecom costs, low tariffs, and
    technological improvements have changed global supply chains.

   Firms are increasingly:
     Outsourcing / offshoring some of their activities.
     Relying on alliances and joint ventures for global competitiveness.
     Using logistics to improve supply chain efficiency.

   Firms are increasingly part of global supply chains, mostly through trade
    and investment relationships with the foreign countries.

   In order to thrive, firms need:
     Smart Borders and world-class transportation infrastructure.
     Leading edge communication infrastructure.
     Free trade and investment.
     Smart Regulations.

                                                                                24
Agenda


         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       25
The objectives of Global Supply Chains

  Two main objectives could be identified:


         Prompt and reliable delivery of high-quality products and
          services at the least cost.


         To effectively meet rising customer expectations.




                                                                      26
Top 3 challenges for North American Exporters


                                      Greatest Facing
                               North American Exporters (2003)

              Customs Compliance                                             Top 3
                                                                             challenges
     Duties and Tariffs Management
                                                                             are SCM
         Supply Chain Collaboration                                          based

               Finding New Buyers

         Expanding to New Locales

        Transportation management

  Financial Payment and Settlement

                 Freight Forwarding

                                      0%   10%        20%        30%   40%            50%




                                                                                            27
Why integrating a GSC: practicality and usefulness

  Help companies compete all over the world


  Expand business operations


  Offer new services and applications to meet global customers
   needs


  Give company a competitive advantage


  Falling international trade barriers mean rising profits




                                                                  28
Recent changes affecting Global Supply Chains

  Internet and technological change


  Proliferation of trade agreements


  Falling Trade Barriers


  Increase in international trade groups


  New Markets




                                                29
Advantages of Global Supply Chains

 Reduced total costs               Increase intellectual asset


 Inventory reduction
                                    Delivery improvement

 Improved fulfilment cycle time
                                    Diversified business and trading
 Reduce cycle time
                                    Competitive advantage
 Increased forecast accuracy

                                    Untapped markets
 Productivity increase


 Improve capacity                  Enhance speed and efficiency


 Expand international connexion



                                                                        30
Potential obstacles to Global Supply Chains

 Member nations VS. Non member nations          Trade imbalances


 Inefficient transportation and distribution    Export surges and recessions
   systems
                                                 Greater distance
 Market instability

                                                 Tax policies
 Different languages

                                                 Operational threats
 Differences in currencies

                                                 Strategic challenges
 Differences in measurement systems
   (metric versus decimal)
                                                 Technological capabilities

 Different customs, beliefs and cultures


 Political turmoil

                                                                                 31
Combating these obstacles

 Duty specialists and trade specialists    Be innovative & Be flexible


 Join nation groups                        Research


 Banding together                          New technology


 Form consortiums                          Infrastructure improvements


 Vertically integrate                      Reduce the number of “stops” in the
                                             chain




                                                                                   32
APEC Supply-Chain Connectivity Framework

  APEC is addressing issues by identifying 8 chokepoints

     Chokepoint 1
       Lack of transparency/awareness of the full scope of regulatory issues affecting logistics;
       Lack of awareness and coordination among government agencies on policies affecting
         logistics sector;
       Absence of single contact point or champion agency on logistics matters.


     Chokepoint 2
       Inefficient or inadequate transport infrastructure;
       Lack of cross border physical linkages (e.g. roads, bridges).


     Chokepoint 3
       Lack of capacity of local/regional logistics sub-providers.


     Chokepoint 4
       Inefficient clearance of goods at Customs;
       Lack of coordination among border agencies, especially relating to clearance of regulated
         goods ‘at the border.

                                                                                                     33
APEC Supply-Chain Connectivity Framework

     Chokepoint 5
         Burdensome customs documentation and other procedures (including for preferential
          trade).


     Chokepoint 6
         Underdeveloped multi-modal transport capabilities;
         Inefficient air, land, and multimodal connectivity.


     Chokepoint 7
         Variations in cross-border standards and regulations for movement of goods, services and
          business travelers.


     Chokepoint 8
         Lack of regional cross-border customs-transit arrangements




                                                                                                     34
Some other impediments to GSCs

   Increased border security and customs requirements
     Port and border congestion, and the increased security
       measures, require better shipment planning and
       coordination

   Impact of natural disasters and pandemics
     Regional disruptions in key component supplies

     Reduced productivity

     Capacity re-directed to emergency causes

     Reduced manpower availability

     Need for robust contingency plans


   Need for infrastructure investment
                                                               35
GSCs entail additional considerations

  ●   Security

  ●   Port issues

  ●   Tax and tariff issues

  ●   Partnerships with local experts

  ●   Cultural differences

  ●   Technology abilities and capabilities

  ●   Risk management

                                              36
Some reasons for extending businesses globally

 Cost, Access to raw-material


 Increase sales, New Markets


 Satisfy shareholders


 Falling tariffs


 Increase in International Trade, Multi-Point Communication


 Increase in internet use throughout the world.



                                                               37
Agenda


         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       38
Globalization is a driver for GSCs




                                     39
So, GSC means making operations globally

                              Global operations




        Suppliers                Operations                    Markets

  Global sourcing             Global manufacturing      Global distribution
  - Dealing with              - Facility location       - Local content regulations
    foreign suppliers         - Coordinating networks   - Managing global
  - Managing                    of plants                 distribution
    international logistics   - Coordinating networks   - Managing risk
  - Managing risks              of R&D facilities
                              - Operations in other
                              countries



                                                                                      40
A GSC as its simplest expression



                              Simple Supply Chain



                 Design and
Materials and                                                         Consumption/
                  Product     Production   Marketing   Distribution
components                                                              recycling
                Development




                                                                                 41
Major entities in a GSC


   Capacity, inventory levels, delivery schedule, payment terms




                                                    Retail
Supplier     Manufacturer        Distributor                          Customer
                                                    Outlets




     Orders, return requests, repair and service requests, payments


                                                                             42
Supply chain fundamental




                           43
A PBMMS model…



 Plan        Buy            Make         Move                 Sell

 Demand       Sourcing                                         Customer
                                                Storage &
  & Supply     & Supplier    Manufacturing                      & Order
                                             Transportation
 Planning     Management                                       Management




                                                                        44
… would look like this.


  Plan      Source                     Make                   Deliver                Buy




         Suppliers                 Manufacturers         Warehouses &        Customers
                                                      Distribution Centers




                       Transportation         Transportation
         Material Costs    Costs                  Costs             Transportation
                                   Manufacturing          Inventory     Costs
                                   Costs                  Costs
                                                                                           45
   Application of a GSC




Source: Chuck Poirier (CSC Consulting), Frank Quinn (Supply Chain Management Review), “Survey of Supply Chain   46
Progress– Best Practices and More,” U-Connect 2007.
    Traditional domestic supply chain


                                    • Limited border crossings                       • Regional plant locations
                                    • Coordinated customs                            • Integrated logistics centers
                                      processes                                        and cross-docks



      Supplier                                                   Plants
     Locations


                                                                                                                 • Stable
                                                                                                                   distances




          • Static supplier base                   • Established carrier base                          • National distribution
          • Established logistics                  • Existing infrastructure                             capacity
            networks                               • Effective regulatory agencies                     • Specialized equipment

                                                                                                                               47
Source: AutoDiversity Management inc. (ADMi) (2009)
    Extended Global supply chain

                                                                             • Multiple plant locations
                                                                             • Flexible manufacturing
                              • Multiple International border                • Parts commonization
                                crossings
                              • Complicated customs
       Supplier                 regulations                                  Plants
      Locations               • Various data requirements




          • Dynamic supplier base         • Multiple mode requirements       • Increased mileage
          • Increased number of           • Broad and diverse carrier base   • International
            supplier options              • Multiple language requirements     dealership network
          • Multiple source               • Regional customs
            countries                     • High level of coordination                               48
Source: AutoDiversity Management inc. (ADMi) (2009)
   A more detailed GSCs: Aerospace supply chain




                      Upstream supply chain   Downstream supply chain


                                                                        49
Source: KPMG, 2009.
   A more detailed GSCs (Oil & gas supply chain )




               Upstream supply chain   Downstream supply chain
                                                                 50
Source: KPMG, 2009.
Business activities that could be
relocated…

  Distribution and logistics
       e.g. transportation activities, warehousing and order processing


  Call centers and help desks
       e.g. after sales services and customers support services


  Marketing, sales and sales services
       e.g. advertising, telemarketing, exhibitions, fairs


  Operations
       e.g. provisions of services or production of goods


  Software development


  Data processing
                                                                           51
… and also…

  Other information and communication technologies services
       e.g. hardware and software consultancy, database services, maintenance and
        repair, web-hosting and other related technology services

  Legal services


  Accounting, book-keeping and auditing


  Human resources management
       e.g. training and education, staff recruitment, provision of temporary personnel,
        payroll management, health and medical services

  Financial and management functions


  Engineering and related technical services
       e.g. technical consultancy, technical testing, analysis and certification, design
        services

                                                                                            52
  Research and development
… but companies could face some issues.

 Legal and administrative barriers         Physical infrastructure in the country or at
                                              the border

 Taxation issues
                                            Border security issues


 Tariffs and trade barriers
                                            Problems with the distance to customers


 Uncertainty of international standards    Linguistic or cultural barriers


 Access to financing                       Customer requirement to use specific
                                              technologies/systems

 Concern of violation of patents and/or
   intellectual property rights             Meeting cost requirmenent


                                            Meeting quality requirement
 Foreign tariffs or trade barriers

                                                                                            53
Different types of Global supply chains models



 ●   Own and manage your own infrastructure


 ●   Use strategic alliances


 ●   Partner with an asset-based third-party


 ●   Partnership with a global integrator of logistics
     services

                                                         54
1. Own and manage your own infrastructure


  Pro                     Con
  ●     Maximum control        Heavy cost




                                             55
2. Use strategic alliances


   Pro                         Con
         Convenience               Unreliable alliance-
         Large area covered         prone




                                                            56
3. Partner With An Asset-Based Third-Party


   Pro                           Con
        Operational standards        Ignorance of complex
                                       customs regulations

        Uniform identity and
         marketing strength           Lack of connections


        Dedicated mgmt               Local economic
         structure                     downturns




                                                              57
4. Partnership With a Global Integrator of Logistics


   Pro                           Con
         Customer friendly           Limited use

         In-country knowledge
                                      Less control

         True information
          systems integration


         Uniform standards




                                                      58
Enabling SMEs to enter in GSCs mode

   Development of a supportive business environment for SMEs.


   Build-up of human, technical, and financial capacity of these SMEs so
    they can understand the policies and operations of global supply chains
    and profitably respond to those requirements.


   Research have found that retail and wholesale distribution services are a
    key channel to exports and global supply chains for manufacturers,
    especially SMEs.


   Retail and wholesale distribution services are a key channel to exports
    and global supply chains for manufacturers, especially SMEs.



                                                                                59
Barriers for SMEs to integrate GSCs

    Lack of entrepreneurial, managerial and marketing skills


    Bureaucracy and red tape


    Lack of accessibility to information and knowledge


    Difficulties accessing financial resources/Lack of capital


    Lack of accessibility to investment (technology equipment and know-how)


    Non-conformity of standardization, lack of quality awareness and lack of mutual
      recognition schemes

    Product and service range and usage differences




                                                                                       60
Barriers for SMEs to integrate GSCs

   Language barriers and cultural differences


   Risks in selling abroad


   Competition of indigenous SMEs in foreign markets


   Inadequate behaviors of multinational companies against domestic
    SMEs/Lack of government supply-supporting programs


   Complexity of trade documentation including packaging and labeling


   Lack of government incentives for internationalization of SMEs


   Inadequate intellectual property protection
                                                                         61
Key technology, process and SCM mandate
play a key role in GSC
  Key technology and processes developed and mandated by service providers to
  manufacturers:

  EDI:     Electronic Data Interchange; exchange of formatted data between the
           different applications of the partner’s computer systems (computer to
           computer).

  ECR:     Efficient Consumer Response; cooperative approach between
           manufacturing companies and distributors with the objective of increasing
           customer satisfaction while improving economics performance of the
           participating companies.

  CPFR:    Collaborative Planning and Forecasting Replenishment; an approach of
           collaboration and integration of forecasting and planning processes
           between customers and suppliers. Partner companies exchange
           information on product sales and forecasts in order to synchronize
           their operational plans.




                                                                                       62
Enablers of innovation and productivity in
GSCs

  Distribution Services (retail, wholesale and supply chain/logistics services) are key to
  diffusion of innovative technology and processes to manufacturers active in global
  supply chains.


  Wal-Mart: Introduced Radio Frequency Identification (RFID) to the industry and
  expects $8.35B of internal annual cost savings and $10B for it’s manufacturer
  suppliers involved in their global supply chains


  Due to the introduction of global supply chain collaboration models by the distribution
  services, U.S. firms across all sectors decreased their logistics costs as percentage of
  GDP by 41% from 1982 to 2003.


  Manufacturers that will deploy the global supply chain collaboration model
  applications, mandated by the distribution services,are expected to enjoy a 5% to 25%
  decrease in supply chain/logistics cost and a 15% to 40% increase in quality and time-
  to-market over competitors.



                                                                                             63
Agenda


         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       64
Drivers of supply chains performance

  Facilities
     places where inventory is stored, assembled, or fabricated
     production sites and storage sites


  Inventory
     raw materials, WIP, finished goods within a supply chain
     inventory policies


  Transportation
     moving inventory from point to point in a supply chain
     combinations of transportation modes and routes


  Information
     data and analysis regarding inventory, transportation, facilities throughout the supply chain
     potentially the biggest driver of supply chain performance


  Sourcing
     functions a firm performs and functions that are outsourced


  Pricing
     Price associated with goods and services provided by a firm to the supply chain

                                                                                                      65
Importance of metrics for GSCs

     Metrics are important to firms for the following reasons:

     Tracking metrics allows firms to track performance over time and guides you on how to
      optimize your Supply Chain.

     Allows management to identify problem areas.

     It also allows for comparison to other companies through like industry benchmarking.
       Certain metrics, such as Inventory Turns, have a widely accepted definition.


     Other metrics, such as Backorders, may need to be customized for particular industry or
      logistics business model.

     Measurements should have dedicated departments or management that are responsible for
      achieving an agreed upon target on the metric.

     Supply Chain Management needs to encourage and support the process changes to achieve
      the desired targets.


                  A supply chain is only as strong as its weakest link
                                                                                                66
Metrics are also useful for policy making

   Existing data resources are inadequate to support policy responses to
    global integration.


   Increasing need for more firm levels data and surveys for policy makers
    and researchers.




                                                                              67
KPI for GSCs


  Key Performance Indicators (KPI):

  A measure which is of strategic importance to a company or
  department.


   For example, a supply chain flexibility metric is Supplier-On-time
    Delivery Performance which indicates the percentage of orders that
    are fulfilled on or before the original requested date.




                                                                         68
Finding solutions using metrics and KPIs

  Measurements alone are not the solution to all problems


  The solution lies in the corrective actions that are taken to improve the
    measure.


  Businesses thrive or fail based on their ability to identify, define, track,
    and act upon Key Performance Indicators (KPIs). Executives and line of
    business management are increasingly feeling the pressure to establish
    the right KPIs to enable more timely and more accurate decisions.


  The faster and more accurately KPIs can be accessed, reviewed,
    analyzed, and acted upon, the better the chance an organization has for
    success.




                                                                                  69
   KPIs and Best in Class companies (BiC)

          According to Aberdeen Group, surveyed companies can be categorized in three
             groups:
              Best-in-Class,
              Average
              Laggards


          Aberdeen,s main research findings show that most companies focus on
             financial and customer KPIs, and less so on process, organizational, and
             product KPIs.

          Best-in-Class companies have taken a more well-rounded approach to KPI
             initiatives, and have identified metrics that encompass key performance
             measures beyond the typical KPIs focused on profitability and cost.

          Additionally, Best-in-Class companies are also stressing the importance of KPI
             visibility throughout the organization. Performance is greatly affected when
             more people have access to KPI information and have the ability to act on it.

                         Best in Class companies want agility and responsiveness
                                                                                               70
Source: Aberdeen Research, « Smart Decisions: The role of Key Performance Indicators », 2007
   What Best-In-Class companies do better than
   others?
          Best-in-Class companies are far more likely to establish an ongoing review of KPIs as part of their
           overall strategy.


          Industry Average and Laggard companies that neglect this step are at risk of measuring KPIs that
           are based on metrics that do not reflect the current business climate.

          KPIs are an integral part of a company’s performance management strategy. The correct
           definition, use, and (most importantly) continual adaptation of KPIs directly impacts performance.

          Best-in-Class companies have adopted a set of capabilities that deliver positive results across a
           diverse set of performance metrics. To achieve Best-in-Class performance, organizations must:

          Institutionalize a KPI strategy – Best-in-Class companies are instituting a KPI culture for alignment
           of business strategy and company goals

          Continuously revise KPI definitions – business changes and so are the KPIs

          Provide access to KPI information to all decision makers – dashboards, scorecards and auto-alert
           reporting are being used by Best-in-Class companies



                                                                                                                   71
Source: Aberdeen Research, “Smart Decisions: The role of Key Performance Indicators” (2007)
Innovation is moving from a firm-to-firm level to a
supply chain versus supply chain

 ● Lean manufacturing principles have revolutionized the way leading firms deliver
    products to their customers and manage their global supplier relationships.

 ● As competition becomes more global, many firms must develop supply chain agility in a
    Just-In-Time (JIT) and mass customisation mode.

 ● Logistics and supply chain management (SCM) are key components of any Lean
    manufacturing initiative.

 ● The two most preferred key performance indicators (KPI) measured by North American
    lean manufacturers are logistics and SCM JIT related (on-time delivery and inventory
    turns).

 ● While inventory turns is the main KPI for evaluating lean supply chain agility, logistics
    cost KPI allow firms to evaluate the efficiency of their logistics and SCM operations in
    their global Lean initiatives.


   The combination of supply chain agility and efficient SCM practices is key to the
   long term competitiveness and prosperity of firms in a GSC context.
                                                                                               72
    Survey results findings

            Survey results are useful to assess the importance of participation of firms in GSC

            Statistics Canada study showed that :

             In 2004, more than half of all manufacturing plants participated in a global supply
                chain

             Large plants were more likely than both small and medium-sized plants to participate
                in a global supply chain

             Innovative plants were more likely to participate in a global supply chain than non-
                innovative plants

             Innovative plants were four times more likely to contract out to a global supplier than
                non-innovative plants.

             Innovative plants that were part of a global supply chain more likely to have world-
                first innovations than those that were not.
                                                                                                                       73
Source: Statistics Canada, Innovation and global supply chains: Findings from the Survey of Innovation (2005) (2007)
     Benchmarking: challenges and tactical
     requirements
            Dynamic ever-growing                           Improve volume forecasting
               supplier base                                  and data transparency

            Multiple countries, languages,                 Develop coordinated supply
               and customs                                    chain contingency plans

            Diverse transportation modes                   Promote collaborative supply
               and infrastructure                             chain networks (OEM’s and
                                                              suppliers)
            Complex data coordination
               requirements                                 Support industry best-
                                                              practice communization and
                                                              productivity improvement
            Disaster recovery planning                       initiatives

            Expanding mileage factors


                 Incorporating benchmarking activities into the strategic planning
                 process will enable effective best practice development and adoption

                                                                                            74
Source: AutoDiversity Management inc. (ADMi) (2009)
     Performance measurement and benchmarking

          Investors          Financial analysis comparison with other targets to assess overall
                             competitiveness and productivity
          Financial          Comparison of peer or target companies market performance in
                             considering corporate investment alternatives
          Product            Process of designing new products or upgrades to current ones,
                             including reverse engineering of competitive products
          Strategic          Process of observing common or uncommon groups’ competitive
                             advantages or disadvantages
          Process            Identifies and observes specific business processes with a goal of
                             identifying best practices
          Functional         Focuses on a single function in order to improve the operation of that
                             particular function.
          Performance        Helps companies assess their competitive position by comparing
                             specific performance dimensions
          Metrics            Used to develop yardstick comparisons, allowing outsiders to evaluate
                             the performance of operators in an industry

          Supply chain benchmarking generally revolves around Strategic, Process, Function, and
          Performance benchmarking… thus promoting more effective performance metrics
                                                                                                      75
Source: AutoDiversity Management inc. (ADMi) (2009)
   Integrating Benchmarking Activities

                                   Logistics scorecard

                                               Lagging                                                            Leading

       1                           Outsource all logistics            Some internal logistics       Retain critical strategy logistics
           Strategy                functions                          capabilities                  resources and capabilities

       2                           Fully decentralized                Specific functions / groups   Centralized and integrated
           Organization                                               are centralized


       3   Network design and      Rigid network; defined by          Flexible                      Flexible, optimal network
           operation               third party

       4                           Lack of control of cost drivers;   Internal / external costs     Full control of cost drivers;
           Cost management         Significant cost disadvantage      managed moderately well       significant competitive
                                                                                                    advantage
       5                           Lack of awareness of key           Limited involvement in key    Strategic involvement in key
           External affairs        issues                             issues                        issues

       6                           Externally developed and           Internally managed, but       Internally managed and
           Systems                 managed                            primarily tactical            strategic integration



                 Supply chain benchmarking contains 6 performance and structural elements.
                                                                                                                                         76
Source: AutoDiversity Management inc. (ADMi) (2009)
Current metrics for supply chain management

    On-time delivery;
    production throughput;
    forecast accuracy;
    fill rate;
    overtime labour;
    supplier performance;
    freight and delivery costs;
    lead time performance;
    stock-outs and backorders;
    inventory turns;
    obsolescence




                                              77
Agenda


         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       78
What is Global Supply Chain Management?




   Supply chain management (SCM) is the management of a
   network of interconnected businesses involved in the
   ultimate provision of product and service packages
   required by end customers.

   (Harland, 1996)




                                                          79
History of Supply Chain Management

  1960’s Inventory Management Focus, Cost Control


  1970’s MRP & BOM - Operations Planning


  1980’s MRPII, JIT - Materials Management, Logistics


  1990’s SCM - ERP - “Integrated” Purchasing, Financials,
         Manufacturing, Order Entry


  2000’s Optimized “Value Network” with Real-Time Decision
         Support; Synchronized & Collaborative Extended Network



                                                                  80
Activities in Supply Chain Management

  Supply chain management is a cross-functional approach to
  manage the movement of raw materials into an organization, certain
  aspects of the internal processing of materials into finished goods,
  and then the movement of finished goods out of the organization
  toward the end-consumer.


  Whereas Purpose of SCM:
  The purpose of supply chain management is to improve trust and
  collaboration among supply chain partners, thus improving inventory
  visibility and improving inventory velocity.




                                                                         81
Supply Chain Management and Uncertainty

  ●   Inventory and back-order levels fluctuate considerably across the
      supply chain even when customer demand doesn’t vary

  ●   The variability worsens as we travel “up” the supply chain


      Multi-tier                             Wholesale
      Suppliers        Manufacturer         Distributors             Retailers              Consumers




                                                      Sales




                                                                             Sales
               Sales




                                 Sales




                       Time                                   Time                   Time
                                           Time




                                         Bullwhip Effect
                                                                                                        82
Role of logistics in GSCM

   The success of supply chain management rests with logistics.


   Five Key Issues of Logistics Effectiveness which are core to Supply
     Chain Management:
      Movement of Product
      Movement of Information
      Time / Service
      Cost
      Integration, both internal and external, both organizations and
       systems

   Supply chain management requires a logistics model based on quick
     order to delivery response. A model which focuses from vendors' doors
     through to delivery to customers' doors.

   The model must meet the customers' demanding and specific
     requirements. It requires organizational flexibility and responsiveness,
     internal and external teamwork and demands the use of processes and
     technology.
                                                                                83
Drivers that affect could logistics and SCM

      The impact of global commerce
      Security within supply chains
      Increasing energy costs
      Sustainable development practices
      Technology and innovation


 Reasons for using metrics in logistics: to help supply chain managers and
 decision-makers better understand:

      Current and future trends
      Competitive position in relation to leading firms within their own
       sector
      Steps that can be taken to become more competitive.


                                                                            84
     Canadian findings on the role of logistics

             Logistics and supply chain services are the enablers of
                integrated global supply chains


             Descartes Systems Group, a Canadian service provider of
                supply chain and logistics technology, provide a system that
                synchronize and connects more than 1000 manufacturers with
                2000 logistics service providers in 180 countries.


                 The results is the access to global synchronized virtual
                    supply chain to Canadian firms from all industrial sectors
                    by service providers.



                                                                                                85
Source: Logistics / Supply Chain Management, Industry Overview and Statistical Profile (2005)
The Canadian experience: the logistics sector is
restructuring to remain competitive

 Consolidations, mergers, and
  acquisitions have been extremely
  common in the Canadian logistics
  sector in the last few years


 Increased number of large firms in
  all sub sectors


 Decreased number of medium
  firms in transportation based sub
  sectors




                                                   86
Manufacturing sector is the most innovative and
agile in logistics and SCM processes

Possible factors:
 Infrastructure
 Head Quarters
   Supply chain mandates
   Technology and process
     adoption
 Size of firms




                             Inventory Turns : How many times a year the average inventory for a firm
                             changes or is sold
                             e.g. 1 = 365 days of inventory; 12 = 1 month of inventory; 365 = 1 day of
                             inventory




                                                                                                 87
Supply chain collaboration is more important than
costs in terms of innovation drivers

   Users (manufacturers,
    wholesalers, and
    retailers) are prioritising
    better co-ordination with
    suppliers and/or
    customers over lower
    costs


   The users perceive
    more benefits from
    these practices both in
    terms of costs and co-
    ordination than do
    logistics service
    providers


                                               88
Collaborative Planning, Forecasting and
Replenishment (CPFR) Model




                                          89
The role of innovation in GSCM

 As competition becomes more global, innovation is moving from a firm-to-
  firm level to a supply chain-to-supply chain perspective


 The adoption of logistics and SCM technology across supply chains is a
  key component for developing efficient collaboration networks




                                                                             90
   Integration of e-SCM applications
   e-SCM applications are not fully integrated across supply chain partners

    Most e-SCM applications are not
       linked internally (mainly large
       firms)


    Very few firms across all sizes
       have integrated supply chain e-
       networks




                                                                              91
Source: Electronic Commerce Survey, Statistics Canada, 2007
   Leveraging logistics technology by linking to
   retailers’ suppliers via their CPFR initiatives

         Retailers are leveraging their
            logistics technology by linking to
            their suppliers via their CPFR
            initiatives while wholesalers are
            not fully embracing the integrated
            supply chain concept

         Logistics service providers are
            linking their e-SCM applications
            with other transportation &
            logistics service providers in
            order to provide global supply
            chain visibility

         Manufacturing sector is the least
            e-SCM integrated sector



                                                              92
Source: Electronic Commerce Survey, Statistics Canada, 2007
   Outsourcing of e-SCM innovation is
   mainly conducted by large firms
         Very few firms using e-SCM
            applications outsource this
            activity

         Connecting multiple supply
            chain partners together though
            application service providers
            (ASP) is the main focus of e-
            SCM outsourcing



                                                              Small (1-19 employees)
                                                              Medium (20-99 – services, 20-499 – manufacturing)
                                                              Large (100+ – services, 500+ -manufacturing)




                                                                                                                  93
Source: Electronic Commerce Survey, Statistics Canada, 2007
    Best-in-Class Analysis

             It is estimated that North American (NA) Small and Medium Sized Enterprises
                 (SMEs) that will deploy logistics and SCM e-collaboration applications will enjoy:

                     5 to 25 percent decrease in logistics and SCM costs

                     15 to 40 percent increase in distribution service quality and time-to-market
                      over competitors that fail to make these investments

             90 percent of NA companies that embrace leading edge logistics and SCM
                 collaboration applications achieved an increase of at least 15 percent of order fill
                 rate accuracy

             Only 40 percent of low technology adopters are achieving similar results


             High technology adopters in SCM collaboration are also achieving comparative
                 advantage in logistics and SCM KPI such as total delivered cost, lead time
                 reduction, increase in perfect orders and increase compliance to customer
                 mandates such as RFID and JIT1

                                                                                                                                                         94

Source: SMBs Embrace SRM Solutions via Service Providers, Gartner, 2008 and Extending Warehouse Management Beyond the Four Walls, Aberdeen Group, 2008
   Sectors that have embraced Lean, Just-In-Time and
   Six Sigma concepts…




           Certification of suppliers
              focuses on purchasing from
              suppliers whose production
              processes meet standards
              setting organisations




  … are leading in the certification of suppliers processes
                                                              95
Source: Advanced Technology Survey, Statistics Canada, 2007
Agenda

         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       96
Trends surrounding the future of GSCs…

   Declining economy


   Social structures


   Cost and availability of raw materials


   Awareness of sustainability


   Consumers and technology


   Business models change


   Availability of information in the supply chain


   Product safety
                                                      97
  Forces and trends that will impact the Future
  Supply Chain
   New markets and                                                                       Sustainability
        a new                                                                                 and
      economic                                                                          the scarcity of
       balance                                                                         natural resources

                     Economic                                             Ecological




                                    Consumer                   Product                           Redesigning
Driving the value                   Behaviour                   Flow                             supply chain
      chain




                     Regulatory                 Information
                                                                         Demographic
                                                    Flow
                                                                                                Graying and
                                                                                                urbanisation
    New rules,
                                                    New
  new compliancy
                                                technologies
                             Explosion of                                Managing complexity                   98
                             information                                 through transparency
   … more specifically

           Globalization is accelerating, leading to large structural shifts for supply chain organizations


           Despite 17% average cost reduction from globalization, many companies do not save on management
            costs


           Product quality, safety, and supply chain delivery and security are critical concerns


           Limited flexibility and the lack of internal competency to manage partners are major barriers to globalization


           Environmental sustainability is driven by the need for regulatory compliance and satisfaction of customer
            demands


           Supply chain maturity, enabled by advanced supply chain practices, appears to have reached a plateau


           Pressures to reduce cost and penetrate local markets are the two key drivers of accelerated globalization


           By 2010, the need for higher supply chain flexibility will be the major driver of supply chain strategy


           China and India are primary targets for globalization, while Eastern Europe is catching up


           The COO agenda is converging on improving supply chain flexibility and delivery performance

                                                                                                                             99
Source: PRTM (2008)
Globalization is accelerating


   Globalization, the level of value creation outside the home country, is gaining
     momentum and leads to Supply Chain Organization Shifts

   More and more manufacturing activities and final assembly have already been
     globalized
      The primary shift of manufacturing and assembly operations has been to low-
        cost locations like China, India, and Eastern Europe
      The trend of outsourcing IT and other shared services such as HR and
        finance is decreasing, as most of the surveyed companies have already
        achieved anticipated benefits from offshoring these functions

   As a result of manufacturing and assembly globalization, support functions such
     as warehousing and procurement have also been globalized in support of
     international locations

   Rapid increasing globalization of product and technology development by
     offshoring R&D and technology development activities.


                                                                                      100
   Summary of Key Industry-specific trends

    Automotive & Industrial                       Consumer Goods
     Local market presence is major               Product innovation is a major driver
        driver                                     Brand focus leads to higher product
     Outsourcing trends will continue
                                                     safety and sustainability concerns than
                                                     in other industries
     Product development outsourcing              Mass customization a challenge as
        will help drive local market access          companies seek emerging market
        and presence                                 growth


    Life Sciences                                 Electronics, Telecoms, Services
     Product cost emerging as major driver        Overall SC maturity has declined as
        and concern                                  electronics supply chains have become
     Globalization has been forcing function
                                                     more complex
        for better internal collaboration          Highest level of physical globalization of
     External partner capabilities are seen as
                                                     all industries
        a major barrier                            Flexibility is the major concern



                                                                                               101
Source: PRTM (2008)
   New ways of working together to eliminate supply
   chain disruptions and enable growth

                             Industry Track (Collaborate)
      Best                 Documentation,        Guiding          Share
      Practices/           Education,            Principles       Results
      Standards            Communication         and Frameworks

      Focus on             Connected             Prepare People   Share Our
      Consumer             Business              for New World    Supply Chain
                           Information

      Strategy             Common Goals          Knowledge,       Sustainability
      Alignment            & Measures            Skills &
                                                                                   Consumer/
                           Information
                                                 Capabilities     Cross-Industry    Shopper
      Jointly Agreed       Sharing*                               Integration
      Growth (JAG)                               Incentives &                      Satisfaction
      Framework            Electronic            Rewards          Integrated
                           Product               Organization     Supply
                           Code (EPC)
                                                 Design           Chain
                           Data Synch

      Strategic Issues     Common Goals,         Specific         Other
      Between Trading      Common                Measures         Data-Sharing
      Partners             Measures              & Priorities     Opportunities

                   Trading Partner Track (Competitive Advantage)
                                                                                                  102
Source: Global Commerce Initiative, Capgemini (2008)
   New Model for the Future Supply Chain

          Highlights Sustainability Benefits




                                                       103
Source: Global Commerce Initiative, Capgemini (2008)
Starting Point to build the future supply chain

   In-store logistics

   Collaborative physical logistics


   Reverse logistics


   Demand fluctuation management


   Identification and labeling


   Efficient assets


   Joint scorecard and business plan




                                                  104
New parameters for GSCs

    Collaborative city replenishment


    Collaborative warehouse and distribution


    Neighborhood delivery


    Lead-time reduction




                                                105
Is your supply-chain “sustainable”?




                                      106
Addressing sustainability issues in GSCs

  Recent events and regulations are driving the necessity to address
  sustainability issues in GSCs

   Kyoto Protocol, December 1997.


   United Nations Climate Meeting, Bali, December 2007.


   Carbon Disclosure Project (CDP).


   EU Directive on Renewable Energy, January 2008.




                                                                       107
    GSCs could rise environmental concerns


                   0.25
                                           Electricity Generation                                The carbon exposure of
                   Increase in costs
                                                                                                 many Canadian industries is
                   associated with a                                                             not insignificant.
                $100/tonne CO2 e price
                       0.20
                applied on all emissions


                   0.15


                                         Agriculture                    Iron and Steel
                                                          Industrial
      Carbon       0.10                                   Minerals
                            Government                                                    Gas Oil
     Exposure               Services
                                       Petroleum                                                        .
                                                                                         Chemical Products
                                       Refining
                                                          Freight                                       o Coal
                   0.05
                                 Construction
                                                                             Other Mineral Mining
                                           Wholesale, Retail Trade                                      Other Manufacturing
                   0.00                                Pulp and Paper                                   (autos, etc.)
                                                                                                                              The area of each
                                       Services
                                                                                                                              circle corresponds
                           0.0                0.2                      0.4                 0.6              0.8               to the relative size
                                                                                                                              of sectoral output
                                   Percentage of Industry Output that is Exported
                                                                                                                                            108
Source: National Roundtable on the Environment and the Economy (2009)
 Evolving Global Value Chains

Company Cultural and Behavioural changes
•Shared services
                                                                                              Shopper Dialogue
•Shared information/collaboration   Information Sharing                                       •A new interface with
                                    •Open platforms for distributed data-sharing models       the consumer


Integrated Logistics/
Home Fulfilment




                                                                                             Sustainability
                                                           Synchronised Production
                                                                                             •Economic development
                                                           •Working from one demand signal
                                                                                             •Environmental protection
                                                           •Integrated upstream suppliers
                                                                                                                109
New KPIs for the Future Supply Chain


 Current KPIs                        Sustainability KPIs

       Availability to consumer           Energy consumption
        (percent in-stock)
                                           CO2 emissions
       Cost reduction                      (greenhouse gases)

       Financial KPIs                     Traffic congestion
           Return on investment
            (ROI)                          Water consumption
           Gross Margin Return
            on “X”(GMROX)
                                           Security compliance
           Return on brand equity
           Inventory
                                           Infrastructure
       Traceability                        simplification


                                                                  110
Impact of Supply Chain Redesign




                                  111
Moving from GSCM to “G”SCM…


         Global Supply Chain Management
                    (GSCM)




         “Green” Supply Chain Management
                   (“G”SCM)




                                           112
… with a “sustainability” angle to GSCM



     “Green Supply Management is integrating
     environment thinking into supply chain
     management, including product design, material
     sourcing and selection, manufacturing process,
     delivery of the final product to the consumers, and
     end-of-life management of the product after its
     useful life.”

     (Srivastara, 2007)




                                                           113
Objectives of “G”SCM

   “G”SCM mainly focuses on making the business orientation eco-friendly


   To achieve competitive advantage and high performance through “G”SCM
     practices

   To integrate the green supply chain into the corporate policies and strategies
     for smooth operation

   To make difference in its approach


   To show how important it is to conserve environment and sustain our natural
     resources and show to what extent is our business activities dependant on
     environment




                                                                                     114
Advantages of being “Green”

    Wal-Mart anticipates its goal of a 5 percent reduction in packaging by 2013
      will produce $3.4 billion in direct savings and roughly $11 billion in savings
      across the supply chain.

    Johnson & Johnson’s energy efficiency program resulted in an estimated $30
      million in annualized savings over the 10 years prior to the company’s 2006
      sustainability report.

    Nestlé, through a combination of packaging source reduction, re-use,
      recycling, and energy recovery, saved $510 million, worldwide, between 1991
      and 2006.




                                                                                       115
  Mathematics of “G”SCM


          Green Procurement
                      +
   Green Manufacturing/Materials
              Management
                      +
    Green Distribution/Marketing
                      +
           Reverse Logistics
----------------------------------------------
Green Supply Chain Management




                                                 116
Scope and relevancy of “G”SCM

  Scope:
   Companies effort to incorporate GSCM leads to reduction of wastage.
   Reduction of pollution
   Sustainability of natural resources.
   Better environment and world to live in.
   Opportunity to slowly orient to “Green” SCM should be the focus of the companies to
     world class standards.


  Relevancy:
   Eliminate wastes.
   Optimum utilization of resources.
   Sustaining environment.
   Competitive advantage.
   Impress customers.
   To make difference.
   Reverse logistics.
   Create social responsibility.
                                                                                      117
Approaches to “G”SCM

  Reactive approach by complying with domestic legislation


  Proactive approach by pre-empting new legislation


  Value-seeking approach




                                                              118
“Green” Supply Chains practices




                                  119
   Addressing “G”SCM: a Canadian perspective

         Objectives of the Canadian Green SCMs project:
          Provide industry with the latest key performance indicators (KPI),
          Productivity and competitiveness analysis,
          Best practices and future trends on “G”SC in distribution activities.



         Expected outcomes of the Canadian “G”SCMs project:
          Provide policy makers with industry perspectives for developing policies
             that better respond to current and future industry needs.




                                                                                      120
Source: Industry Canada
   Concepts: “G”SCM in Distribution Activities


        “G”SCM practices involve integrating environmental
        thinking into distribution practices

          “G”SCM practices include:
              Energy efficiency
              Reduction of GHG air emissions
              Water conservation or processing
              Waste reduction
              Reduced packaging/increased use of bio-degradable packaging
              Product and packaging recycling/re-use
              Green procurement practices




                                                                             121
Source: Industry Canada
   “G”SCM drivers across supply chains

       Costs coupled with the need for competitiveness advantages
       are the main “G”SCM drivers across supply chains

     Energy costs can amount to
      55% of air transportation costs
      and 29% of truck transportation
      costs


     Logistics and transportation
      firms value GSCM as a service
      differentiator in a highly
      commoditized market




                                                                    122
Source: Industry Canada
   Leading sectors on the use of “G”SCM practices

    Logistics and transportation (L&T) companies are leading the use of GSCM
      practices compared with manufacturing and retail firms

   Logistics and transportation
      service providers own more
      transportation assets than
      manufacturing and retail
      firms

   Retail chains GSCM
      opportunities are more
      complex due to multiple
      store locations and
      franchise business models




                                                                          123
Source: Industry Canada
   Some facts about the use of “G”SCM practices

            Firm size may no longer impact whether “G”SCM activities are pursued

            Retail chains “G”SCM mandates encourage suppliers to become greener

            Initial retail chains “G”SCM practices are within organizations

            Second generation “G”SCM practices include “G”SCM mandates with suppliers at both services
             (transportation and logistics) and manufacturers

            “G”SCM practices translate into reduced energy consumption and waste in distribution, decreased GHG
             emissions, and less packaging

            Retail chains have an opportunity to have access to carbon credits and decrease harmful air emissions and
             waste

            Transportation services have an opportunity to reduce their global industry carbon emission footprint.

            Emissions differ widely by transportation mode
               The emission ratio of:
                 Marine to rail is 1.5
                 Truck to marine is 1.4
                 Air to truck is 2.7


                                                                                                                         124
Source: Industry Canada
   Overall Key Findings of “G”SCM

         Main “G”SCM business drivers include the high cost of energy and a
            desire to have a competitive advantage over other firms.

         Since many “G”SCM practices require limited investment, are low-risk, and
            offer short-term return-on-investment periods, businesses of all sizes are
            able to engage in these activities.

         Despite the large number of businesses that understand the importance of
            “G”SCM, the number of firms that actually engage in such practices is
            significantly lower.

         Retail chain “G”SCM mandates bring business and environmental benefits
            to the entire consumer products supply chain.

         Most Best-in-Class (BiC) businesses are able to better differentiate their
            distribution services, improve risk management, increase sales, and
            increase access to foreign markets, all while reducing distribution costs.
                                                                                         125
Source: Industry Canada
Publications related to “G”SCM




                                 126
Agenda


         Prologue: The International Context

            Roadmap to Global Supply Chains

            Objectives of Global Supply Chains

            Characteristics of Global Supply Chains

            Benchmarking the Global Supply Chains

            Global Supply Chains Management and
             the Role of Logistics

            Global Supply Chain Management in the
             future

            Beyond Global Supply Chains: Global
             Value Chains

                                                       127
The World is changing…

   Fragmentation of the production process

   Manufacturing and Services sectors have changed

   Technical advances: lower costs and globalisation

   Key role of trade liberalization

   Increasing outsourcing

   Increasing partnering

   Increasing participation of emerging countries

   Increasing participation of smaller firms



       ... giving rise to a new business model: Global Value Chains
                                                                      128
What are Global Value Chains?



  Global Value Chains (GVCs) include the full range of
  activities that are required to bring a product from its
  conception to its end use and beyond (e.g. design,
  production, distribution). Value chain activities can be
  contained within a single firm or divided among different
  firms, and can be contained within a single geographical
  location or spread over wider areas.
  (Gereffi, Humphrey, Sturgeon, Global Value Chains Initiative,
  www.globalvaluechains.org/concepts/index.html, 2006)




                                                                  129
Global Value Chains: A New Paradigm for all Firms

   Globalization trends are placing particular pressure on industries
      offering both opportunities and challenges
       Fast growing emerging markets
       Increasingly global competition for talent and innovation


     Rise of intermediate trade reinforces the need for global connection
       Firms are increasingly fragmenting their production processes and
        spreading them around the world


     GVCs are about a lot more than developing foreign markets
       Foreign affiliates no longer only serve local markets
       Global transactions and partnerships seen as key to access skills,
        inputs, technology and other opportunities

      Challenge is to be involved in high value-added, high impact sectors...   130
GVCs VS. GSCs

Supply chains require…      Value chains require…


 Trade infrastructure       Markets
 Trade finance              Firms
 Trade intermediaries       Innovation
 Logistics providers        Technology
 Transport services         Rule of law
 Information flow (ICTs)    Finance




                                                    131
Value chains and supply chains


                                 End users


                                 Competition



                 Lead firm A                    Lead firm B
Value
Chain                                                           Co-evolution

                                   First tier
                 Supply base A                  Supply base B
        Supply
        Chain                     Second tier


                                   Materials



                                                                           132
Do you speak GVC?

 GVC actors
  Lead firms, suppliers, global suppliers, and platform leaders


 GVC Linkages
  Five kinds: market, modular, relational, captive, and integrated


 GVC processes
  Outsourcing and offshoring
  Co-evolution and industrial upgrading


 GVC features
  Industry value chains and supply bases
  Specialized industrial clusters

                                                                      133
   Five kinds of value chain linkages


                                                  Key variables
                                                                                          Degree of explicit
           Governance
                                                                                          coordination and
           type                   Complexity of   Ability to codify   Capability in the   power asymmetry
                                  transactions    transactions        supply-base


               Market                 Low              High               High
                                                                                                 Low


               Modular                High             High               High



                                      High             Low                High
              Relational



               Captive                High             High               Low

                                                                                                 High
                                      High             Low                Low
              Hierarchy




                                                                                                               134
Source: Gereffi, Humphrey and Sturgeon (2005)
Key questions raised by Global Value Chains

     What business functions are establishments doing internally and externally
      (outsourcing)?

     What business functions are establishments doing domestically and abroad (offshoring)?

     What types of jobs go with various business functions, including employment by
      occupation, wages, tenure, and number and type of new hires in past 12months?

     What educational and training requirements are associated with various business
      function combinations?

     How do the business functions that an establishment engages in relate to the goods and
      services bought and sold (inputs and outputs)?

     How do the business functions that an establishment engages in relate to its economic
      performance (market share, profitability, employment, share of value added, market
      share)

     How do the mix of business functions in firms compare to establishments in other
      countries?

                                                                                               135
GVC strategies are motivated by numerous
factors

         Changing business models allow firms to seize opportunities by:
             -   Tapping into new growth markets
             -   Accessing lower cost resources and best in world capabilities
             -   Specializing in “core” competencies to sustain competitive
                 advantage
             -   Achieving economies of scale and scope
         Growing competition in domestic and international markets force firms
          to increase efficiency and to move into higher value-added activities.
         A fragmentation of the production process increases competition. Firms
          can be easily replaced and must therefore constantly innovate and
          seek to develop a global reach.
         Industries are finding innovative ways to adapt.

 Today, many firms in diverse sectors view operating globally, and
 serving and utilizing GVCs as essential to growth and competitiveness.
                                                                                 136
   An Example of a Partially Integrated Firm
                                                                             Germany:
                                                                             •Eight Manufacturing Facilities
                             Canada:                                         •Corporate Headquarters
                             •Marketing Subsidiaries
United States:                                                                             Russia:
•R&D Center                                                                                •Kaliningrad Assembly Plant
•Manufacturing Plant

                                           United Kingdom:
                                           •Four Manufacturing Plants


                                                                                                                                              China:
                                                                                                                                              •Shenyang Joint venture with
                                                                                                                                              Brilliance China Automotive
                                                                  Switzerland:
                                                                  •Manufacturing Plant
                                                                  •R&D Center

                                                                                                                     Thailand:
                                                                                                                     •Rayong
                                                                                                                     Assembly Plant
                                                                                            Egypt:
              Mexico:
                                                                                            •Kairo Assembly
              Marketing Subsidiaries                                                                                    Malaysia:
                                                                                            Plant
                                                                                                                         •Kuala Lumpur
                                                                                                                         Assembly Plant

                                                                                                                          Indonesia:
                                                                                                                          •Jakarta Assembly
                                                                                                                          Plant




                                                 Brazil:                              South Africa:
                                                 •Curitiba (Tritec Motors)            •Rosslyn Manufacturing Plant


                                                                                                                                                                 137
                                                                                 BMW
   Activities can be located anywhere…

… and have major implications for competitiveness that have not been well explored.

                                   Development,
  Bombardier C-Series              manufacturing of wings

                               CDIA              Advanced order          Cockpit, tail
                                                 from Lufthansa         assembly and
                                                                       other sections of
       Final assembly          Supplier FDI       Financing (UK)           fuselage


 Aircraft interior      Headquarters,
                            R&D
            Avionics
                                      Air management           Potential customers
                                          systems
                                                                                  1




                                                                                      138
   Global Value Chains: an example


      Design: California, USA                                  Nylon hair: Japan

                                                              Body material:
        Moulds, paint
                                                              Taiwan
        pigments: USA

      Assembly: Indonesia                                      Clothing: China
           and Malaysia


         Marketing: USA                                        Quality testing:
                                                               USA



                              Global Process for Producing a Barbie doll
                                              Marketing: USA
                                                                                   139
Source: Grossman and Rossi-Hansberg (2006)
The business model has changed dramatically…

            Issue                                    Old Economy                       New Economy
 Boundary of the firm:                          Established                         Less clear

 Production:                                    Mass production                     Specialized

 Product cycles:                                Long                                Shortened

 Integration of industries:                     Vertically integrated               Horizontally integrated

                                                                                    Open and collaborative
 Innovation model:                              Proprietary and closed model
                                                                                    model

                                                                                    Serve all components of
 Foreign investment:                            Capture local markets
                                                                                    firms activities

                                                Giant vertically integrated lead-   Smaller highly-
 Firm size:
                                                firms                               specialized lead-firms

                                                                                    Volatility managed
 Capacity utilization:                          Volatile
                                                                                    through outsourcing




  Note: this doesn’t apply to all sectors or all firms of the economy.                                        140
…and can have significant impacts on economic
performance
  The organization of production into GVCs can affect:

  Productivity growth and competitiveness
   by encouraging firms to specialise and focus on their core competencies
   by creating an incentive for firms to move into activities where they have a clear competitive
    advantage
   by increasing competitive pressures on firms, and thus promote innovation and efficiency
    gains
   by putting pressure to attract and retain high-value activities (skills and FDI)


  Employment and wages
   if certain activities are moved offshore or decline in importance
   if domestic firms focus on new activities
   if foreign affiliates expand/decrease their activities in the country


  Consumers and prices
   by reducing prices of some goods (e.g. Wal-Mart effect) and increasing product variety, for
    both business and individual consumers
   by maintaining inflation low which creates an appropriate environment for investment


        These impacts may vary across activities, industries, regions, and countries
                                                                                                     141
  Opportunities, Challenges and Policy Implications

Implications of GVCs for industry:
       Increased specialization causes shifting comparative advantages

                  Firms must respond by moving-up the value chain and perform
                  in knowledge intensive segments

       Emerging economies are competing in both traditional and knowledge
        intensive segments (e.g. China in electronic equipment and India in ICT)

                  Firms must develop specialized markets, product branding, and
                  specialized knowledge-assets

       Industries and firms must seize global opportunities

                  Firms must take advantage of greater modularity of production
                  and more collaborative innovation policies

                                                                                   142
Guiding principles for policy framework

       Policies must encourage economic openness
          Competition is a cornerstone of industrial policy and a key driver of
           innovation and productivity growth


       Policies must enable firms to seize the opportunities of
        globalization and GVCs
          Comparative advantage must be fully leveraged globally using
           appropriate business models and strategies


       Policies must also facilitate the adjustment of the economy to
        global competitiveness pressures
          Must adapt to changing global environment while minimizing
           hardship on affected communities


                                                                                   143
Upcoming policy opportunities in Canada

 Potential opportunities to pursue GVC policy options include:

  Global Commerce Strategy
      Expand role of missions abroad to promote R&D partnerships, licensing, joint
       ventures opportunities.


  National Gateway and Trade Corridor Strategy
      Provide world-class border, transportation, communication, and logistic
       infrastructures.


  Smart Regulations
      Provide harmonized regulations to facilitate Canadian firms global integration.


  North American Leaders Summit (former Security Partnership and Prosperity)
      Enhance prosperity among the United States, Canada and Mexico through
       greater integration of the North American economy as a strong base to compete
       globally.                                                                  144
One example of Canada’s initiative to help
SMEs integrating GVCs
 Publication of a guide for SMEs

    The Government of Canada published a guide entitled: Linking In to Global Value Chains: A Guide for Small and
     Medium-Sized Enterprises

    This guide was created for Canada’s small and medium sized enterprises (SMEs) who are interested in expanding
     internationally.

    Its intent is to present the global value chain business model as a means for boosting firms’ global competitiveness,
     profitability and long term sustainability.

 How The Guide Works

    First section
         Presents the global value chain business model and its relevance for Canadian SMEs.

    Second section
       Help the firm to evaluate firm’s operational capabilities and determine whether or not it has the capacity for
        doing business internationally and determine whether or not it is ready to take advantage of this business model.

    Third section
        Presents various opportunities for how to optimize your own global value chain. Whether it be selling,
         outsourcing, investing abroad or entering into a joint venture.

                                                                                                                        145
Thank you for your attention




For further information, please contact
    Eric Futin at AGVCI@ic.gc.ca




                                          146

				
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