IPM Assignment-Bhuwan Pande (14/20) Review the case and suggest suitable approaches to implement VSM structure for

improving global sourcing effectiveness. An alternative structure of the global sourcing process is called a vendor-supplied-material (VSM), in which the JV will have direct contact with the raw material suppliers and have full responsibility for decisions on procurement, materials management, production planning, and delivery. Note that the VSM approach is similar to vendor-managed inventory in the retail sector. This method will reduce the main Companys involvement in forecasting demand and developing internal schedule requirements. The VSM structure overcomes most of the problems associated with its counterpart VRM but requires more coordination, cooperation and communication. Data sharing also is critical to VSM system success. The customer and vendor companies must be able to communicate effectively in an electronic setting. Some customer companies can have misgivings about corporate privacy, but the vendor company providing packaging and shipping materials must have solid information regarding the supply demand that the customer company might impose. Without effective data sharing, the customer company could find itself storing excess packaging and shipping material, thereby tying up capital that otherwise could be used for other purposes. Examine the relationship between inventory and aggregate output in the global sourcing context. Management of inventory can be viewed both at a macro and micro level. Aggregate inventories, often tied to patterns in the economy, are of primary concern to economists and governmental officials. From a macro perspective, in examining the relationship between inventory and aggregate output in Canada, France, Germany, Italy, Japan, the UK and the USA, West finds little correlation between the two - except in the case of Japan. Firms that export a significant percentage of their output may have to hold high levels of finished goods inventory. One reason is that in order to compete in export markets, US firms must minimize the total landed costs to their foreign customers, including transportation and transaction costs. Transportation costs can generally be reduced by shipping in bulk loads or container-load quantities. These large shipments require inventories be accumulated prior to shipment. Other export-related transaction costs are also reduced with bulk shipments, including transaction-specific documentation and legal costs, costs involved with inspection and packaging, inland transportation expenses, and terminal handling and storage charges. Given high transportation and transaction costs, inventory accumulation may be the best option for firms to be competitive in export markets. What are the implications of micro level inventory studies pertaining to JIT systems, materials requirement planning (MRP), optimized production technology (OPT) and manufacturing resources planning (MRP II) on global sourcing? Micro level inventory studies pertain to JIT systems, materials requirement planning (MRP), optimized production technology (OPT) and manufacturing resources planning (MRPII). JIT systems were first developed in Japan and subsequently adopted in the USA and other developed nations. Studies examined the relationship between inventory systems, industry, and country type, and found that in developing countries the objectives of an inventory system can be quite different from those in developed countries. Research on JIT implementation in Australia ranks the main difficulties that firms face in implementation as:

Supplier or customer inflexibility; Staff resistance to change in existing system; Difficulty with or unexpected costs in the reorganization of production facilities; and Prohibitive capital requirements.

Research also shows that information on inventories is more widely and frequently disseminated in Japan than in the USA. It also finds strong support for the hypothesis that a larger proportion of Japanese managers receive specific performance goals related to inventory reduction and flexibility than do US managers. In developing countries inventory control is lax and bureaucratic with little pressure to meet delivery dates and inventory costs; infrastructure is poor; many of the supply sources are overseas; and there is a shortage of trained personnel. Thus inventories are used to buffer for poor infrastructure and greater uncertainty. Large companies in China receive important materials and equipment from the government. Historically, Chinese firms have had an incentive to overestimate their need for such equipment and materials because the government distribution system did not charge for the same. Since capital was also provided by the government, and free of tax, inventories were essentially free and components overstocked. Find out /develop managerial implications from the perspective of your allotted focus industry (project industry) from contingency model Whatever structure is chosen by corporate headquarters for its global sourcing would be effected by the location of the key suppliers and company operations, and the overall corporate organizational structure. You should decide on the organization structure only after carefully conducting a cost/benefit analysis. You could create regional purchasing offices to deal with suppliers in the area your office is located. Dealing directly with the foreign supplier usually will result in the lowest purchase price by eliminating the mark-ups of international trade intermediaries but it does require an investment in travel, communications, logistics, and interpretation of costs. You could create a global commodity management organization when there are a large number of common requirements across facilities or business units and the supply base is not always located in the same geographic area as the buying company's operations. New studies suggest that the turbulence experienced by suppliers and their strategies for dealing with the turbulence should also be considered. A focal firm in a large SC e.g. automotive usually has suppliers from different industry/services branches. Each supplier is operating in different turbulent environments and therefore its optimal strategy and potential problems impacting on the whole SC can vary considerably. Automotive companies experience unplanned supplier events such as shortages, declining quality or in some cases even supplier bankruptcies on a frequent basis. Companies have to conduct a supplier risk assessment for critical commodity groups like castings, shocks, steering gears and wheels in an attempt to mitigate the supplier-connected risks. A risk assessment approach is taken to measure supplier characteristics and performance. The assessment is conducted as a combination of interviews and online surveys that allow organisations to assess a large group of suppliers within a short timeframe. Online surveys measuring characteristics and the SC structure (location, transportation routes, etc.) are completed by selected supplier key informants. Risk analysts also rate the suppliers market and technology turbulence and its exogenous uncertainty. These ratings were equally rated and then summed up to provide a

turbulence index. Current supplier performance is also measured. The results are presented in a supplier portfolio matrix including suppliers turbulence and current performance in the chain. Critical suppliers with a high level of turbulence are identified based on this portfolio view. Their performance, environment and impact on the focal firm are then examined closely. Suppliers in low turbulent environment are placed in the rock position in the supplier portfolio whereas suppliers with a similar performance rating but in a highly turbulent environment are placed in the bouncer position. For such bouncer position suppliers, mitigation plans are put in place and an investment are made in qualifying back-up suppliers for the same in tune with Contingency Theory. When the bouncer position supplier collapse and liquidate due to market turbulence, the back-up suppliers can be notified and immediately, production can be transferred to those suppliers. Without a consideration of turbulence, the mitigation of this risk may not have been a high priority and an expensive disruption would have been the outcome. Discuss the impact of countertrade, FTZ and free trade agreements on global inventory and logistics systems In todays world, the economic order is rapidly evolving as players take the field either as new participants or as older participants who are forging new alliances as trade barriers are relaxed thus allowing expanded world trade. The European Common Market is on track to play a much larger role in a United Europe that will have a combined Gross National Product greater than the United States and a larger population to boot. Then there is China, an emerging, yet powerful, economic force on the horizon, very intent on building up its economic muscle. Countries making up the former Soviet Union are emerging on the world scene as well as the reunification of Germany, some with strategic materials. These changes are opportunities and challenges for those organizations willing to seize the opportunities to be global marketplace competitors even though they still have the existing problems of selecting the right domestic supplier but now have additional problem of source identification and evaluation, international logistics, communications and information systems, and risk management. Countertrade helps in bridging currency gaps and reducing vast inventories. The establishment of free trade zones and resulting increases in foreign direct investment will lead to above-average growth of the transportation and logistics industry in emerging markets. For many emerging markets, free trade zones will help spur economic growth and logistics services providers will need to adjust their service offerings to serve these trade hot spots. They will need to understand how government regulation in each market affects them, be it changing customs procedures, the establishment of free trade zones, incentives for foreign direct investment or new sustainability requirements. This may mean adapting their service portfolio not once, but many times, as demand patterns change and emerging markets develop. In addition, free trade zones can support further globalisation if strategically located inventory buffers are established, allowing exporters to respond with quicker lead times to demand from the destinations which they serve.