The Establishment of Global Supply Chain November 9 th, 2010 Hong Kong China Eric Futin APEC e-Trade...

The Establishment of Global Supply Chain

November 9th, 2010

Hong Kong China

Eric Futin

APEC e-Trade and Supply Chain Management Training Course

(Phase III: Logistic Management for SMEs)

2

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

3

Agenda


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

4

Supply Chains become more Internationally linked

Source: OECD (2007)

5

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

Trade has grown faster than GDP

Source: OECD (2010)

6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

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

Share of intermediate trade in total trade, OECD

Intermediate trade has become more important?

Source: OECD (2010)

7

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

Intermediate trade has become more global (1)

Source: OECD (2010)

8

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

Intermediate trade has become more global (2)

Source: OECD (2010)

9

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

Trade within industries…

Source: OECD (2010)

10

0

10

20

30

40

50

60

70

80

90

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

Sweden

Japan

Netherlands

Italy

Poland

United StatesIsrael

Share of intra-firm exports in total exports of affiliates under foreign control, 1997-2007

… and within firms

Source: OECD (2010)

11

Imported intermediates/domestic intermediates

… and increasing international sourcing of Intermediates

Source: OECD (2010)

12

Contribution to the manufacturing trade balance, 2008

How imports can distort competitiveness figures (1)

Source: OECD (2010)

13

Import content of exports


Source: OECD (2010)

14

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

From Europe From NAFTA From East Asia From Other Asia From RoW

Import content of exports with partner countries


Source: OECD (2010)

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Agenda


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

16

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)

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)

17

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

18

… driven by key factors

Rapid technical progress

Low and falling telecommunication costs

Technological advances

Falling transportation costs

The adoption by a large number of countries of more open economic policies

(e.g. lower tariffs, lower FDI restrictions)

The emergence of developing, low wages economies

0

2

4

6

8

10

12

1996 1997 1998 1999 2000 2001 2002 2003

Africa

Amer-South

Asia&Pacific

Europe

World

Cost of 3 min. call to U.S. ($U.S.)

Average Tariffs

Source: IFS V5.28, WDI CD 05.

Source: Yi (2003)

Goods and services can be delivered globally at lower cost.Goods and services can be delivered globally at lower cost.

19

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

20

…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.

21

… 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.

22

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.

23

… 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.

24

… 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.

25

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.

26

Agenda









27

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.

28

Top 3 challenges for North American Exporters

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

Freight Forwarding

Financial Payment and Settlement

Transportation management

Expanding to New Locales

Finding New Buyers

Supply Chain Collaboration

Duties and Tariffs Management

Customs Compliance Top 3 challenges are SCM based

Greatest Facing North American Exporters (2003)

29

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

30

Recent changes affecting Global Supply Chains

Internet and technological change

Proliferation of trade agreements

Falling Trade Barriers

Increase in international trade groups

New Markets

31

Advantages of Global Supply Chains

Reduced total costs

Inventory reduction

Improved fulfilment cycle time

Reduce cycle time

Increased forecast accuracy

Productivity increase

Improve capacity

Expand international connexion

Increase intellectual asset

Delivery improvement

Diversified business and trading

Competitive advantage

Untapped markets

Enhance speed and efficiency

32

Potential obstacles to Global Supply Chains

Member nations VS. Non member nations

Inefficient transportation and distribution systems

Market instability

Different languages

Differences in currencies

Differences in measurement systems (metric versus decimal)

Different customs, beliefs and cultures

Political turmoil

Trade imbalances

Export surges and recessions

Greater distance

Tax policies

Operational threats

Strategic challenges

Technological capabilities

33

Combating these obstacles

Duty specialists and trade specialists

Join nation groups

Banding together

Form consortiums

Vertically integrate

Be innovative & Be flexible

Research

New technology

Infrastructure improvements

Reduce the number of “stops” in the chain

34

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.

35

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

36

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

37

GSCs entail additional considerations

● Security

● Port issues

● Tax and tariff issues

● Partnerships with local experts

● Cultural differences

● Technology abilities and capabilities

● Risk management

38

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.

39

Agenda









40

Globalization is a driver for GSCs

41

So, GSC means making operations globally

OperationsSuppliers Markets

Global sourcing

- Dealing with

foreign suppliers

- Managing

international logistics

- Managing risks

Global manufacturing

- Facility location

- Coordinating networks

of plants

- Coordinating networks

of R&D facilities

- Operations in other

countries

Global distribution

- Local content regulations

- Managing global

distribution

- Managing risk

Global operations

42

A GSC as its simplest expression

Simple Supply Chain

Materials and components

Design and Product

DevelopmentProduction Marketing Distribution

Consumption/ recycling

43

Major entities in a GSC

Supplier Manufacturer DistributorRetail Outlets

Customer

Capacity, inventory levels, delivery schedule, payment terms

Orders, return requests, repair and service requests, payments

44

Supply chain fundamental

45

A PBMMS model…

Sourcing

& Supplier Management

Manufacturing

Storage &

Transportation

Customer

& Order Management

Demand

& Supply Planning

Plan MakeBuy Move Sell

46

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material CostsTransportation

CostsTransportation

Costs TransportationCostsInventory

Costs

Manufacturing Costs

PlanPlan Source Source Make Make Deliver Deliver Buy Buy

… would look like this.

47

Application of a GSC

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

48

Traditional domestic supply chain

• Static supplier base• Established logistics

networks

• Limited border crossings• Coordinated customs

processes

• Established carrier base• Existing infrastructure• Effective regulatory agencies

• Regional plant locations• Integrated logistics centers

and cross-docks

• National distribution capacity

• Specialized equipment

• Stable distances

Source: AutoDiversity Management inc. (ADMi) (2009)

49

Extended Global supply chain

Supplier Locations

Plants

• Dynamic supplier base• Increased number of

supplier options• Multiple source

countries

• Multiple International border crossings

• Complicated customs regulations

• Various data requirements

• Multiple mode requirements• Broad and diverse carrier base• Multiple language requirements• Regional customs• High level of coordination

• Multiple plant locations• Flexible manufacturing• Parts commonization

• Increased mileage• International

dealership network


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A more detailed GSCs: Aerospace supply chain

Upstream supply chain Downstream supply chain

Source: KPMG, 2009.

51

A more detailed GSCs (Oil & gas supply chain )

Source: KPMG, 2009.

Upstream supply chain Downstream supply chain

52

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

53

… 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

Research and development

54

… but companies could face some issues.

Legal and administrative barriers

Taxation issues

Tariffs and trade barriers

Uncertainty of international standards

Access to financing

Concern of violation of patents and/or intellectual property rights

Foreign tariffs or trade barriers

Physical infrastructure in the country or at the border

Border security issues

Problems with the distance to customers

Linguistic or cultural barriers

Customer requirement to use specific technologies/systems

Meeting cost requirmenent

Meeting quality requirement

55

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

56

1. Own and manage your own infrastructure

Pro● Maximum control

Pro● Maximum control

Con Heavy cost

Con Heavy cost

57

2. Use strategic alliances

Pro Convenience

Large area covered

Pro Convenience

Large area covered

Con Unreliable alliance-

prone

Con Unreliable alliance-

prone

58

3. Partner With An Asset-Based Third-Party

Pro Operational standards

Uniform identity and marketing strength

Dedicated mgmt structure

Pro Operational standards

Uniform identity and marketing strength

Dedicated mgmt structure

Con Ignorance of complex

customs regulations

Lack of connections

Local economic downturns

Con Ignorance of complex

customs regulations

Lack of connections

Local economic downturns

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4. Partnership With a Global Integrator of Logistics

Pro Customer friendly

In-country knowledge

True information systems integration

Uniform standards

Pro Customer friendly

In-country knowledge

True information systems integration

Uniform standards

Con Limited use

Less control

Con Limited use

Less control

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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.

61

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

62

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

63

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.

Key technology, process and SCM mandate play a key role in GSC

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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.

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Agenda









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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

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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 linkA supply chain is only as strong as its weakest link

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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.

69

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.

70

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.

71

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.

Source: Aberdeen Research, « Smart Decisions: The role of Key Performance Indicators », 2007

Best in Class companies want agility and responsivenessBest in Class companies want agility and responsiveness

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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

Source: Aberdeen Research, “Smart Decisions: The role of Key Performance Indicators” (2007)

73

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.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.

74

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.

Source: Statistics Canada, Innovation and global supply chains: Findings from the Survey of Innovation (2005) (2007)

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Benchmarking: challenges and tactical requirements

Dynamic ever-growing supplier base

Multiple countries, languages, and customs

Diverse transportation modes and infrastructure

Complex data coordination requirements

Disaster recovery planning

Expanding mileage factors

Improve volume forecasting and data transparency

Develop coordinated supply chain contingency plans

Promote collaborative supply chain networks (OEM’s and suppliers)

Support industry best-practice communization and productivity improvement initiatives


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

76

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 metricsSupply chain benchmarking generally revolves around Strategic, Process, Function, and Performance benchmarking… thus promoting more effective performance metrics

77

External affairs

Systems

Cost management

Network design and operation

Organization

Strategy

Logistics scorecard

Strategic involvement in key issues

Limited involvement in key issues

Lack of awareness of key issues

LeadingLagging

Internally managed and strategic integration

Internally managed, but primarily tactical

Externally developed and managed

Full control of cost drivers; significant competitive advantage

Internal / external costs managed moderately well

Lack of control of cost drivers; Significant cost disadvantage

Flexible, optimal networkFlexibleRigid network; defined by third party

Centralized and integratedSpecific functions / groups are centralized

Fully decentralized

Retain critical strategy logistics resources and capabilities

Some internal logistics capabilities

Outsource all logistics functions

1

2

5

3

4

6

Integrating Benchmarking Activities


Supply chain benchmarking contains 6 performance and structural elements. Supply chain benchmarking contains 6 performance and structural elements.

78

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

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Agenda









80

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)

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)

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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

History of Supply Chain Management

82

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.

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Supply Chain Management and Uncertainty

Manufacturer

Wholesale Distributor

sConsume

rs

Multi-tier

SuppliersRetailer

s

Time

Sale

s

Sale

sTime

Sale

s

Time

Sale

s

Time

Bullwhip Effect

● 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

84

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.

85

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.

86

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.

Source: Logistics / Supply Chain Management, Industry Overview and Statistical Profile (2005)

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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

88

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

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

89

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

90

Collaborative Planning, Forecasting and Replenishment (CPFR) Model

91

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

92

Integration of e-SCM applications

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

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

Source: Electronic Commerce Survey, Statistics Canada, 2007

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

93

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


94

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)

95

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

Source: SMBs Embrace SRM Solutions via Service Providers, Gartner, 2008 and Extending Warehouse Management Beyond the Four Walls, Aberdeen Group, 2008

96

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

Source: Advanced Technology Survey, Statistics Canada, 2007

… are leading in the certification of suppliers processes

97

Agenda









98

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

99

Forces and trends that will impact the Future Supply Chain

ProductFlow

ConsumerBehaviour

InformationFlow

RegulatoryRegulatory

EconomicEconomic EcologicalEcological

DemographicDemographic

Newtechnologies

Newtechnologies

Sustainability Sustainability andand

the scarcity ofthe scarcity ofnatural resourcesnatural resources

New markets and a new

economic balance

New rules,new compliancy

Graying andurbanisation

Explosion of information

Managing complexity Managing complexity through transparencythrough transparency

Driving the value Driving the value chainchain

RedesigningRedesigningsupply chainsupply chain

100

… 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

Source: PRTM (2008)

101

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.

102

Summary of Key Industry-specific trends

Automotive & Industrial

Local market presence is major driver

Outsourcing trends will continue

Product development outsourcing will help drive local market access and presence

Consumer Goods Product innovation is a major driver Brand focus leads to higher product

safety and sustainability concerns than in other industries

Mass customization a challenge as companies seek emerging market growth

Life Sciences Product cost emerging as major driver

and concern Globalization has been forcing function

for better internal collaboration External partner capabilities are seen as

a major barrier

Electronics, Telecoms, Services Overall SC maturity has declined as

electronics supply chains have become more complex

Highest level of physical globalization of all industries

Flexibility is the major concern

Source: PRTM (2008)

103

Consumer/

Shopper

Satisfaction

Consumer/

Shopper

Satisfaction

New ways of working together to eliminate supply chain disruptions and enable growth

Focus onConsumer

Focus onConsumer

StrategyAlignment

Jointly AgreedGrowth (JAG)Framework

StrategyAlignment

Jointly AgreedGrowth (JAG)Framework

Prepare Peoplefor New World

Prepare Peoplefor New World

ConnectedBusinessInformation

ConnectedBusinessInformation

Share OurSupply Chain

Share OurSupply Chain

Common Goals& Measures

InformationSharing*

ElectronicProductCode (EPC)

Data Synch

Common Goals& Measures

InformationSharing*

ElectronicProductCode (EPC)

Data Synch

Knowledge,Skills &Capabilities

Incentives &RewardsOrganizationDesign

Knowledge,Skills &Capabilities

Incentives &RewardsOrganizationDesign

Sustainability

Cross-IndustryIntegration

IntegratedSupplyChain

Sustainability

Cross-IndustryIntegration

IntegratedSupplyChain

Documentation,Education,Communication

Documentation,Education,Communication

Strategic IssuesBetween TradingPartners

Strategic IssuesBetween TradingPartners

Common Goals,CommonMeasures

Common Goals,CommonMeasures

SpecificMeasures& Priorities

SpecificMeasures& Priorities

ShareResults

ShareResults

OtherData-SharingOpportunities

OtherData-SharingOpportunities

BestPractices/Standards

BestPractices/Standards

Source: Global Commerce Initiative, Capgemini (2008)

GuidingPrinciplesand Frameworks

GuidingPrinciplesand Frameworks

Industry Track (Collaborate)

Trading Partner Track (Competitive Advantage)

104

New Model for the Future Supply Chain

Source: Global Commerce Initiative, Capgemini (2008)

Highlights Sustainability Benefits

105

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

106

New parameters for GSCs

Collaborative city replenishment

Collaborative warehouse and distribution

Neighborhood delivery

Lead-time reduction

107

Is your supply-chain “sustainable”?

108

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.

109

GSCs could rise environmental concerns

The carbon exposure of many Canadian industries is not insignificant.

.o

Electricity Generation

AgricultureIndustrial Minerals

Iron and Steel

Gas Oil

Chemical Products

CoalFreight

Petroleum Refining

Construction

Wholesale, Retail Trade

Pulp and PaperServices

Other Mineral Mining

Other Manufacturing (autos, etc.)

Government Services

0.0 0.2 0.4 0.6 0.8

0.00

0.05

0.10

0.25

0.15

0.20

Increase in costs associated with a

$100/tonne CO2 e price applied on all emissions

Carbon Exposure

Percentage of Industry Output that is Exported

Source: National Roundtable on the Environment and the Economy (2009)

The area of each circle corresponds to the relative size of sectoral output

110

Evolving Global Value Chains

Company Cultural and Behavioural changes

•Shared services

•Shared information/collaboration

Integrated Logistics/ Home Fulfilment

Information Sharing•Open platforms for distributed data-sharing models

Synchronised Production•Working from one demand signal•Integrated upstream suppliers

Sustainability•Economic development•Environmental protection

Shopper Dialogue•A new interface withthe consumer

111

New KPIs for the Future Supply Chain

Current KPIs

Availability to consumer (percent in-stock)

Cost reduction

Financial KPIs Return on investment

(ROI) Gross Margin Return

on “X”(GMROX) Return on brand equity Inventory

Traceability

Current KPIs

Availability to consumer (percent in-stock)

Cost reduction

Financial KPIs Return on investment

(ROI) Gross Margin Return

on “X”(GMROX) Return on brand equity Inventory

Traceability

Sustainability KPIs

Energy consumption

CO2 emissions (greenhouse gases)

Traffic congestion

Water consumption

Security compliance

Infrastructure simplification

Sustainability KPIs

Energy consumption

CO2 emissions (greenhouse gases)

Traffic congestion

Water consumption

Security compliance

Infrastructure simplification

112

Impact of Supply Chain Redesign

113

Moving from GSCM to “G”SCM…

Global Supply Chain Management

(GSCM)

“Green” Supply Chain Management

(“G”SCM)

114

“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)

“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)

… with a “sustainability” angle to GSCM

115

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

116

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.

117

Mathematics of “G”SCM

Green Procurement+

Green Manufacturing/Materials Management

+ Green Distribution/Marketing

+Reverse Logistics

----------------------------------------------Green Supply Chain Management

118

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.

119

Approaches to “G”SCM

Reactive approach by complying with domestic legislation

Proactive approach by pre-empting new legislation

Value-seeking approach

120

“Green” Supply Chains practices

121

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.

Source: Industry Canada

122

Concepts: “G”SCM in Distribution Activities

“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

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


123

“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

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


124

Leading sectors on the use of “G”SCM practices

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

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


125

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


Some facts about the use of “G”SCM practices

126

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.


127

Publications related to “G”SCM

128

Agenda









129

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... giving rise to a new business model: Global Value Chains

130

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)

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)

What are Global Value Chains?

131Challenge is to be involved in high value-added, high impact sectors... Challenge is to be involved in high value-added, high impact sectors...

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

Global Value Chains: A New Paradigm for all Firms

132

GVCs VS. GSCs

Supply chains require…

Trade infrastructure

Trade finance

Trade intermediaries

Logistics providers

Transport services

Information flow (ICTs)

Value chains require…

Markets

Firms

Innovation

Technology

Rule of law

Finance

133

Value chains and supply chains

Lead firm A

Supply base A

Lead firm B

Supply base B

Co-evolution

Competition

Supply Chain

End users

Value Chain

First tier

Second tier

Materials

134

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

135

Governance type

Key variablesDegree of explicit coordination and power asymmetryComplexity of

transactionsAbility to codify transactions

Capability in the supply-base

Market

Modular

Relational

Captive

Hierarchy

Five kinds of value chain linkages

Source: Gereffi, Humphrey and Sturgeon (2005)

High

High

High

High

High

High

High

High

High

HighLow

Low

Low

Low

Low

Low

High

136

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?

137

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.Today, many firms in diverse sectors view operating globally, and serving and utilizing GVCs as essential to growth and competitiveness.

138

Canada:•Marketing Subsidiaries

United States:•R&D Center•Manufacturing Plant

Mexico:Marketing Subsidiaries

Germany:•Eight Manufacturing Facilities•Corporate Headquarters

Russia:•Kaliningrad Assembly Plant

Brazil:•Curitiba (Tritec Motors)

United Kingdom:•Four Manufacturing Plants

South Africa:•Rosslyn Manufacturing Plant

Egypt:•Kairo Assembly Plant

Thailand:•Rayong Assembly Plant

Malaysia:•Kuala Lumpur Assembly Plant

Switzerland:•Manufacturing Plant•R&D Center

China:•Shenyang Joint venture with Brilliance China Automotive

Indonesia:•Jakarta Assembly Plant

BMW

An Example of a Partially Integrated Firm

139

Activities can be located anywhere…

1

Advanced order from Lufthansa

Financing (UK)Final assembly

Avionics

Headquarters, R&D

Development, manufacturing of wings

Aircraft interior

CDIA

Supplier FDI

Cockpit, tail assembly and

other sections of fuselage

Air management systems

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

Potential customers

Bombardier C-Series

140

Design: California, USA Nylon hair: Japan

Clothing: ChinaAssembly: Indonesia and Malaysia

Marketing: USA

Source: Grossman and Rossi-Hansberg (2006)

Global Process for Producing a Barbie dollGlobal Process for Producing a Barbie doll

Marketing: USA

Global Value Chains: an example

Moulds, paint pigments: USA

Body material: Taiwan

Quality testing: USA

141

The business model has changed dramatically…

Boundary of the firm: Established Less clear

Production: Mass production Specialized

Product cycles: Long Shortened

Integration of industries: Vertically integrated Horizontally integrated

Innovation model: Proprietary and closed model Open and collaborative model

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

Firm size: Giant vertically integrated lead-firms

Smaller highly-specialized lead-firms

Capacity utilization: VolatileVolatility managed through outsourcing

Issue Issue Old Economy Old Economy New Economy New Economy

Note: this doesn’t apply to all sectors or all firms of the economy.

142These impacts may vary across activities, industries, regions, and countriesThese impacts may vary across activities, industries, regions, and countries

…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

143

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

144

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

145

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.

146

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.

147

Thank you for your attention

For further information, please contact

Eric Futin at [email protected]

The Establishment of Global Supply Chain November 9 th, 2010 Hong Kong China Eric Futin APEC e-Trade...

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