Chapter 3 Global Dimensions of Supply Chains Learning Objectives

After reading this chapter, you should be able to do the following:

Describe the scope of a global companys supply chain network and understand what questions are appropriate for the network to function on a competitive basis.

Understand the three major phases of globalization.

Appreciate the complexity and magnitude of the operations of some successful global companies and why global expansion is important to their growth. Explain how technology and service specialists can help companies, especially small- to medium-size firms, penetrate the global marketplace.

Learning Objectives (cont.)

After reading this chapter, you should be able to do the following:

Appreciate the importance and magnitude of the trading partner countries of the United States.

Understand the nature of global markets and competitive strategy.

Explain the rationale for global security measures and the balance necessary to ensure that such security measures do not impede trade. Discuss global transportation options and strategic intermediaries.

Three eras of globalization

The

first era was initially driven by countries (1400 1800) seeking materials and goods not available in their own land second era of globalization (18002000) was driven by companies seeking goods and materials, labor, economies of scale, and markets. the third era of globalization, said to have begun around the year 2000, the significant characteristic is that it is being powered by individuals and smaller organizations

The

In

Supply Chains in a Global Economy

Economies and companies could improve their wealth by allowing specialization of tasks. The advantage is true as long as you can sell the increased volume that is produced. It is an important role of logistics to help extend the market area of countries or companies through improved efficiency to lower the landed cost in new market areas.

The Scope and Magnitude of Global Business

The

ability to connect to individuals and companies across the globe and to connect computer information systems on a 24/7 basis has provided unparalleled opportunity for collaboration horizontally and vertically in supply chains.
trade volume with China was 18.2 percent of the total of the top 10 for 2006, and it increased its trade volume by 20 percent from 2005 to 2006. In 2000, China was number 4 following Canada, Mexico, and Japan.

The

Global Markets and Strategy

The global business environment has changed significantly and become much more conducive to business activity between and among different countries. Success in the global market place requires developing a cohesive strategy, including product development, technology, marketing, manufacturing, and supply chains. Global markets and strategy have four important characteristics: standardization reduces complexity global competition reduces the product life cycle traditional organizational structures and business models frequently change globalization introduces more volatility

Supply Chain Security: A Balancing Act

Given the importance of global trade to the United States, a delicate balance exists between security and the efficient flow of global commerce.
More cargo inspections, much more paperwork, and a longer time to clear U.S. borders are now a reality. C-TPAT is a cooperative effort to secure the global supply chain and to facilitate legitimate cargo and conveyance.

Ports

Ports are a critical part of global supply chains and also a major focus for global security.

Americas ports are a vital part of its global commerce. Over $2 trillion in trade value per year passes through U.S. ports, and over $18 billion is collected in industry fees and taxes.

North American Free Trade Agreement

NAFTA establishes free trade between these three countries and provides the way the agreement is to be interpreted.

Even though the U.S./Canada Free Trade Agreement has been in effect for some time, certain trade barriers still remain.
The supply chain constraints will eventually be eliminated as NAFTA experience grows.

A Typical Truck Shipment Crossing into Mexico

Global Transportation Options

Ocean

The most pervasive and important global shipment method, accounting for two-thirds of all international movements. Major advantages are low rates and the ability to transport a wide variety of products and shipment size Three major categories: Liner service Charter vessels Private carriers
Fast transit times An advantage in packaging Disadvantage of air carriage is high rates

Air

Global Transportation Options (cont.)

Motor

Use motor transport when shipping goods to between the United States and Mexico or Canada It is very common in Europe Motor also plays a large part in intermodal shipments

Rail

International railroad use is also highly similar to domestic rail use Intermodal container shipments by rail are increasing Maritime bridge concepts Land bridge

Strategic Channel Intermediaries

Foreign Freight Forwarders

Supplies expertise to international shippers Consolidate small shipments into more economical sizes Derives income from fees for service

Non-Vessel-Operating Common Carriers

Consolidates and dispenses containers at inland points Uses the shipping expertise that NVOCCs possess Ocean carrier gains from the increased market area

Strategic Channel Intermediaries (cont.) Export Management Companies

EMCs act as agents for domestic firms in the international arena Obtain orders, selecting appropriate markets, distribution channels, and promotional campaigns

Export Trading Companies

ETC exports goods and services to overseas buyers and handles most of the export arrangement ETC allows small- to medium-size firms to engage in foreign trade

Strategic Channel Intermediaries (cont.)

Customs House Brokers

Oversee the movement of goods through customs and ensure that the documentation accompanying a shipment is complete and accurate for entry into the country

Operate under power of attorney from the shipper to pay all import duties due on the shipment
The importer is ultimately liable for any unpaid duties

Keeps abreast of the latest import regulations and specific requirements of individual products

Storage Facilities and Packaging

Transit sheds provide temporary storage while the goods await the next portion of the journey
Carrier provided hold-on-dock storage free of charge until the vessels next departure date Public warehouses are available for extended storage periods. Bonded warehouses operate under customs agencys supervision and are used to store, repack, sort, or clean imported merchandise entered for warehousing without paying import duties while the goods are in storage.

Packaging

Export shipments moving by ocean transportation require more stringent packaging than domestic shipments normally do

The shipper may find settling liability claims for damage to export goods very difficult. Usually, the freight handling involves many firms, and these firms are located in different countries.

Summary Companies competing in global supply chains need to address some important questions for their global networks to ensure their efficiency and effectiveness.

There have been three phases of globalization: the first was driven by countries, the second by large companies, and the third by individuals and small organizations. Successful global companies have transformed their supply chains on an ongoing basis to enable them to deliver low cost and high value to the ultimate customer. The scope and magnitude of trade flows between the United States and other countries have grown considerably in the last several decades. One interesting development has been the growth in importance of trade with China and several other Asian countries. Success in the global marketplace requires developing a cohesive set of strategies with respect to customer service, product development, business models, and overall supply chains.

Summary (cont.)

Supply chain security has taken on increased importance since September 11, 2001. Companies individually, jointly, and in cooperation with the various levels of government need to be actively involved. The federal government, in particular, has expanded the scope of its regulations and policies for global security. U.S. ports play a critical role in global supply chains since over 90 percent of global trade passes through them. Ports are also an important focus for security. Canada and Mexico are ranked number 1 and 3, respectively, on the list of most important trading partners with the United States. That relationship is enhanced by the North American Free Trade Agreement ratified by Congress in 1994. While the treaty had lofty goals, it still is experiencing problems with full implementation of its objectives. Nevertheless, it has fostered trade in North America. Global supply chains have a number of transportation and related service options available to managers. Each of the options has advantages and disadvantages that need to be analyzed.