materials management bus 3 – 141 global supply week of apr 30, 2007
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Materials Management
BUS 3 – 141
Global Supply
Week of Apr 30, 2007
Page 2 2
Agenda
– “Deal of the Weekend”
– Statistics for U.S. Imports and Exports
– Reasons for Global Sourcing
– Potential Problems in Global Sourcing
– Career Opportunities and Risks
– Global Supplier Management
– Unique features of working in foreign countries
U.S. Imports and Exports:Selected Statistics
Page 4 4
0.000
200.000
400.000
600.000
800.000
1,000.000
1,200.000
1950 1960 1970 1980 1990 1995 1996 1997 1998 1999
Trends in International Trade$
(Mil
lio
ns)
Year
U.S. Imports U.S. Exports
U.S. Imports Increasing at a Faster Rate than Exports
Imports ExportsSurplus /
Deficit1950 8.984 10.282 1.2981960 15.075 20.612 5.5371970 39.756 42.590 2.8341980 256.984 220.786 -36.1981990 495.300 393.600 -101.7001995 743.543 584.742 -158.8011996 795.289 625.075 -170.2141997 869.704 689.182 -180.5221998 911.896 682.138 -229.7581999 1,024.618 695.797 -328.821
* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin
Page 5 5
0.000
20.000
40.000
60.000
80.000
100.000
120.000
140.000
160.000
180.000
200.000
Canada Japan Mexico China Germany UnitedKingdom
Taiwan SouthKorea
France Italy
Key U.S. Trading Partners (Yr 1999 statistics)$
(Mil
lio
ns)
U.S. Imports U.S. Exports
* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin
Imports ExportsSurplus /
DeficitDeficit %
Canada 198.711 166.600 -32.111 -19.3%Japan 130.864 57.466 -73.398 -127.7%Mexico 109.720 86.909 -22.811 -26.2%China 81.788 13.111 -68.677 -523.8%Germany 55.228 26.800 -28.428 -106.1%United Kingdom 39.237 38.407 -0.830 -2.2%Taiwan 35.204 19.131 -16.073 -84.0%South Korea 31.179 22.958 -8.221 -35.8%France 25.708 18.877 -6.831 -36.2%Italy 22.357 10.091 -12.266 -121.6%
Page 6 6
U.S. Imports by Selected Commodity
145.9
91.9 88.6 84.4 75.863.8 56.4 50.9
36.7
300.5
0.000
50.000
100.000
150.000
200.000
250.000
300.000
350.000
$ (M
illi
on
s)
$ Millions % of TotalVehicles 145.927 14.7%Machinery 91.936 9.2%Electrical Machinery 88.620 8.9%Office Machinery 84.430 8.5%Mineral fuels 75.803 7.6%Chemicals 63.825 6.4%Clothing 56.412 5.7%TV's, VCR's, etc. 50.936 5.1%Agriculture 36.681 3.7%Other Mfg Goods 300.467 30.2%
* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin
The Case for Global Sourcing,along with some Problems
Page 8 8
Reasons for Global Sourcing
– Items are not available in the United States (e.g. Coffee, precious metals)
– Price (especially for highly labor-intensive items)
– Government incentives
– Faster / better support of Customers in the region
– High Volume makes the business case
– Product design stable or changes easy to implement
– Repeatable, manufacturable Quality requires minimal buyer support
Page 9 9
Potential Problems in Global Sourcing
– Additional Lead time
– Additional Inventory required
– Quality
– Logistics and transportation costs and issues
– Source location and evaluation
– Expediting
– Political and labor problems
– Currency fluctuations
– Tariffs and duties
– Language and communications
– Legal problems
– Hidden costsA careful business case is required to validate that the problems are offset by significantly lower total cost of
ownership than what can be sourced domestically
Page 10 10
Inventory Risk in Global Sourcing
lead time (L)
ROP
cyclestock
INVENTORY
TIME
ROP = L × d
Longer Lead Time increases Reorder Point, and Increases Pipeline
Longer Lead Time pulls in Reorder Point, and Increases Pipeline
Extra Inventory
Earlier Reorder Point
Page 11 11
Other Inventory Issues in Global Sourcing
– Obsolescence
– Damaged In Transit
– Missing In Transit
– Lost
– Stolen
Page 12 12
Hidden Costs
– Business Travel
– Some Overhead still required in the US
– Commissions to customs brokers
– Fees for consultants, inspectors
– Exchange Rate differentials
– Extra paperwork/documentation
– Freight forwarder
– Warehousing
– Port handling
– Possible political issues with customers
– Personnel, Recruiting, and Retention issues in the US
– Price Protection / Discounts can negate cost savings
Career Opportunities and Risks
Page 14 14
Career Implications
– Emphasis on Value
– Critical requirement for Unique Skills
– Benefits of continuous Learning
– Expatriate opportunities
– Fluency in other language(s) a differentiator
– Leveraging offshore experience
Global Supplier Management
Page 16 16
Prerequisites for International Sourcing
– Professional Purchasing staff
– Professional Logistics staff
– Legal department in-house or on retainer
– Information Technology applications and infrastructure
– Volumes to support the Business Case
Page 17 17
Suppliers can be found through many sources
– Company records
– Catalogs (online and printed)
– Trade Journals and Trade Shows
– Advertisements
– Supplier and commodity directories
– The Internet
– Sales contacts and interviews
– Colleagues, networking, professional contacts
From Wk 12 – Chapter 10
Page 18 18
Factors to Consider when Selecting Suppliers
Technical, Engineering and Operations
– Quality History
– Quality Systems
– Design Engineering capability
– Sustaining Engineering capability
– Facilities and Equipment
– Output Capacity
• Ability to ramp up and down quickly• Long term potential
– Flexibility and responsiveness
– Track record of cost reductions
– Logistics expertise
From Wk 12 – Chapter 10
Page 19 19
Finding International Sources
– Internet
– Government Websites and Publications
– U.S. Department of Commerce
– Chambers of Commerce in selected cities
– Brokers and Consultants
– Thomas Register equivalents
– Supply Departments from non-competing businesses
Benchmarking and sharing “lessons learned” with non-competingbusinesses is valuable beyond Supply issues (e.g. Systems Selection
and Implementations, Acquisitions, Change Management)
Same Process as domestic sourcing, with a few Exceptions
Page 20 20
Evaluating International Sources
Same Process as domestic evaluations, with a few Exceptions
– Detailed questionnaires
– Phone interviews
– Product samples
– Sample receipts and order processing
– Leveraging technical staff experience
– Strategic Visits
– Consultants and representatives in Region
Page 21 21
Organizing for Global Sourcing
– Centralized Control vs. Autonomy vs. Hybrid
– Management commitment
Leverage expertise as a competitive edge
Recognize need for specialists if no expertise exists in-house
– Commodity Teams
• Identify world-class suppliers, regardless of location
• Local purchasing groups focus on continuous supply;
commodity teams negotiate selection and deals
– Regional Purchasing Offices
– International Purchasing Offices
Page 22 22
Cultural Considerations and Social Customs
– Pictures, graphics, and numbers are more effective communication than
speaking
– Keep as much as possible in writing
– Use interpreters for key meetings and negotiations
– Avoid using first names until you are invited
– Avoid slang, jargon, and metaphors (“Pig and Chicken”)
– Get advice from people in your own company
– Know as much as possible about the country (countries) where you will do
business
– Visit as often as possible, taking time to know the culture in addition to
business issues
Page 23 23
International Purchasing Specialists
Import brokers and agents Help find suppliers Handling paperwork and interaction with local import/export agencies
Import merchants Buy products and takes title. Then they resell and deliver to the buyer
Trading companies Handle a wide variety of products and services to and from a particular
country or region (e.g. Japanese companies use trading companies to move goods into North America)
Similar to Distributors in the U.S.
Page 24 24
Free Trade Zones (FTZ)
Isolated, enclosed area in (or adjacent to) a port of entry, usedto import, process, and reship products to foreign markets
Major functions are
– Storage
– Manufacturing
– Transshipments
– Exhibition and Display
Main purpose is to save TIME and MONEY
– Avoid, postpone, or reduce Tariffs
– Avoid, postpone, or reduce Paperwork