GLOBAL SOURCING & SCM

FTU
 SUPPLY CHAIN MANAGEMENT

The supply chain – the network that links together the different
aspects of the value chain, coordinating materials, information,
and funds from the initial raw material supplier to the ultimate
customer.

Supply Chain Management (SCM) – the design, operation, and

improvement of systems that create and deliver the firm’s primary
products and services.

Used effectively, it can:

• Reduce costs
• Increase revenue
MV EVER GIVEN
 SUPPLY CHAIN MANAGEMENT

Supply Chain Management (SCM) – The activities in

the value chain that occur outside the company.

Operations Management or logistics management –

often refers to internal activities.
 CASE STUDY – JOHN DEERE

Supply Chain Cost Reduction Challenges:

• Diverse product range – heavy machinery for the consumer
market and industrial equipment, which is made to order.
• Retail activity is extremely seasonal, with the majority of sales
occurring between March and July.
 CASE STUDY – JOHN DEERE

The Path to Cost Reduction:

• Supply chain network-redesign program – resulting in the
commissioning of intermediate “merge centers” and
optimization of cross-dock terminal locations.
• Consolidated shipments and using break-bulk terminals during
the seasonal peak.
• Increased its use of third-party logistics providers and
effectively created a network that could be optimized
tactically at any given point in time.
 CASE STUDY – JOHN DEERE

Supply Chain Cost Management Results:

Achievements included an inventory decrease of $1 billion, a
significant reduction in customer delivery lead times (from ten
days to five or less) and annual transportation cost savings of
around 5%.
 CASE STUDY – INTEL

Supply Chain Cost Reduction Challenges:

• Intel had to reduce the supply chain costs for the Atom chip,
but had only one area of leverage – Inventory.
• Inventory had been kept very high to support a nine-week
order cycle. The only way Intel could find to make supply
chain cost reductions was to bring this cycle time down and
therefore reduce inventory.
 CASE STUDY – INTEL

The Path to Cost Reduction:

• Innovative supply chain strategy for the semiconductor industry: make to
order. The company began with a pilot operation using a manufacturer in
Malaysia. Through a process of iteration, they gradually sought out and
eliminated supply chain inefficiencies to reduce order cycle time
incrementally.
• Further improvement initiatives included:
• Cutting the chip assembly test window from a five-day schedule, to a bi-weekly,
2-day-long process.
• Introducing a formal S&OP planning process.
• Moving to a vendor-managed inventory model.
 CASE STUDY – INTEL

Supply Chain Cost Management Results:

Through its incremental approach to cycle time improvement,
Intel eventually drove the order cycle time for the Atom chip
down from nine weeks to just two. As a result, the company
achieved a supply chain cost reduction of more than $4 per unit
for the $20 Atom chip—a far more palatable rate than the
original figure of $5.50.
 CASE STUDY – INTEL

Competitor challenges – TSMC:

Dominant semiconductor manufacturer.
Current scarcity of sophisticated chips into electronics and
automobiles products.
Over reliance and dependence on a few chip manufacturers.

What about the US / China?

 FACTORS IN SUPPLY CHAIN
STRATEGIES

• Compatibility – the degree of consistency between the foreign

investment decision and the company’s competitive strategy.
• Manufacturing Configuration – requires the company to
consider whether to centralize manufacturing in one country,
establish regional operations, or set up multidomestic
production.
• Coordination – involves integrating activities into a unified
system.
• Control – involves measuring performance so the company can
respond appropriately to changing conditions.
 SUPPLIER NETWORKS

Sourcing – the process of obtaining a supply of inputs

(raw materials and parts) for production.
Global sourcing – the process of materials management
(which includes sourcing), inventory management, and
transportation between suppliers, manufacturers and
customers.
 GLOBAL SOURCING

Outsourcing – when a company externalizes a function

or process to another business.

Contract Manufacturing – when the entire

manufacturing process is being handled by another firm.
WHY OUTSOURCE?
 WHY OUTSOURCE?

The growing importance of technology:

• Cloud computing
• Cybersecurity
• Robotic Processing Automation (RPA) / AI

Organizations are looking for the next major technology catalyst

to power their business transformation efforts.
 OUTSOURCE – CLOUD

Most companies today claim to be investing in cloud computing.

• Around 90% see using the cloud as one of their primary enablers
in their outsourcing journey.

● However, a lack of knowledge in terms of solutions or

operating models are major barriers to realizing the full benefits
of the cloud, particularly around increasing scalability,
improving speed to market, and reducing costs.
OUTSOURCE – CYBERSECURITY
OUTSOURCE – CYBERSECURITY
 OUTSOURCE – RPA

Robotic Processing Automation (RPA) continues to be a major

driving force in outsourcing solutions.
• Over 75% are actively considering or pursuing RPA in their
sourcing arrangements.
• Adoption of RPA would continue to grow, with companies
implementing automation solutions through third party
providers, Centers of Excellence (CoEs), or a combination of
the two.

● Organizations need to overcome technology limitations and

improve management awareness.
OUTSOURCE – RPA
 AUTOMATION/AI

1) What will be the future impact of automation on the

manufacturing sector in Vietnam?
2) Can automation/AI be a solution to declining
birthrates around the world in the coming decades?
 OUTSOURCING
CONSEQUENCES

Jobs: Gain vs. Loss (USA)

• About 300,000 jobs get outsourced out of the U.S. each year.
• 3.7 million in the U.S. have lost their jobs to China since 2001.
• 86% of Americans blamed outsourcing for exacerbating the Covid-19 crisis.

Other Examples:
➢ Vodafone – will be laying off 1,700 service center employees in Romania, India,
and Egypt, affecting about 8% of that workforce as they implement new
automation solutions.
➢ In the Czech BPO segment, software robots are now doing the full-time work of
an estimated 4,000 employees, representing 4% of the total BPO labor force.
These lost jobs have been partially offset by the 1,200 new full-time Czech
employees who work on programming and implementing automation systems.
WHERE TO OUTSOURCE?
 CASE STUDY

Remember Li & Fung from Lecture 1?

CASE STUDY:

Supply chain of the future:

Supply chain management is undergoing massive change driven by disruptive
technologies in the retail industry.

Coming up with innovative

services and solutions
through scale allowing to
act as a catalyst for change
to supply chain partners
around the world.
 WHY GLOBAL SOURCING?

• To reduce costs through cheaper labor, laxer work

rules, and low land and facilities costs.
• To improve quality.
• To increase exposure to worldwide technology.
• To improve the delivery-of-supplies process.
 WHY GLOBAL SOURCING?

• To strengthen reliability of supply – supplementing

domestic suppliers with foreign ones.
• To gain access to materials that are only available
abroad.
• To establish presence in a foreign market.
• To satisfy offset requirements.
• To react to competitors’ offshore sourcing practices.
 GLOBAL SOURCING

Vertical Integration – when a company owns the entire

supplier network, or at least a significant part of it.
Industrial Clusters – occur when buyers and suppliers
locate close to each other to facilitate doing business.
Keiretsu – Japanese group of independent companies
that work together to manage the flow of goods.
 INDUSTRIAL CLUSTERS

Industrial Clusters:
• Build production networks and value chains
• Develop supporting industry
• Improve the capacity and the competitiveness of enterprises
Cluster development can create potential positive externalities:
• Technology and knowledge spillover effects
• Sophisticated labor allocation
• Access to capital
• Cluster brand building
• Stronger stakeholder networks
Cluster development can also have negative effects:
• “Lock-in effects” – inhibiting competition
• Rely on existing technologies – hindering innovation
 FOREIGN TRADE ZONES

Foreign trade zones (FTZs) – areas in which domestic

and imported merchandise can be stored, inspected, and
manufactured free from formal customs procedures until
the goods leave the zones
• General purpose
• Subzones
 MAKE OR BUY DECISION

The make-or-buy decision

Which production activities should take place in-house
and which should be subcontracted to outside
independent companies either domestic or foreign?
SUPPLY CHAIN
INVESTMENTS
Hoa Phat Group acquires Australia's Roper Valley iron ore mine:
320 million tons of reserves with mining capacity of four million
tons per year.
 SUPPLIER RELATIONS

Firms that outsource must decide:

•How to work with suppliers
•Close arrangement
• Trust
•Arms-length
 SUPPLIER RELATIONS

Original Equipment Manufacturer (OEM) – a company

that produces parts and equipment that may be marketed by
another manufacturer.
Original Design Manufacturer (ODM) – a company that
designs and manufactures a product, as specified, that is
eventually rebranded by another firm for sale
 CASE STUDY – VINSMART

Exists the manufacturing of smartphones:

• Over dependence on outsourced components.
• Fierce competitions in the low-priced segment.

Vietnamese smartphone brands mostly chose Original Design

Manufacturing (ODM) as their business model by selecting
already-existing product designs from factories in other
countries
(mostly China), and selling it under
their own brand name.
 PURCHASING FUNCTION

Four phases of purchasing:

1) Domestic purchasing only
2) Foreign buying based on need
3) Foreign buying as part of a procurement strategy
4) Integration of global procurement strategy
 INFORMATION TECHNOLOGY

Electronic Data Interchange – links suppliers, manufacturers,

customers, and intermediaries.
Enterprise Resource Planning/Material Requirements
Planning – links information flows from different parts of a
business and from different geographic areas.
Radio Frequency ID (RFID) – labels products with an electronic
tag, which stores and transmits information regarding the
product’s origin, destination, and quantity.
E-Commerce – joins together suppliers with companies and
companies with customers.
 QUALITY

Quality
• Meeting or exceeding customer expectations.
• Involves careful design of a product or service and
ensuring that the organization’s systems can
consistently produce the design.
 QUALITY

Zero defects – no flaws of any kind.

Acceptable quality level (AQL) – a few
unacceptable products would be dealt with
through repair facilities and service warranties.
 W. EDWARDS DEMING
QUALITY MANAGEMENT

Deming advocated for:

1) Better design of products to improve service.
2) Higher level of uniform product quality.
3) Improvement of product testing in the workplace
and in research centers.
4) Greater sales through side markets (global).
Deming’s 14 Points
 DEMING’S 14 POINTS

• Drive out fear.

• Create constancy of purpose toward • Break down barriers between
improvement of product and service. departments.
• Adopt the new philosophy. • Eliminate slogans, exhortations, and
• Cease dependence on inspection to targets for the work force asking for
achieve quality. zero defects and new levels of
• Move towards a single supplier for any productivity.
one item, on a long-term relationship of • Eliminate management by objectives.
loyalty and trust. • Remove barriers to pride of
• Improve constantly and forever. workmanship.
• Institute training on the job. • Institute education and self-
• Institute leadership. improvement.
• The transformation is everybody's job.
 W. EDWARDS DEMING
QUALITY MANAGEMENT

"Massive training is required to instill

the courage to break with tradition.
Every activity and every job is a part of
the process.”
 TOTAL QUALITY MANAGEMENT

Total Quality Management (TQM) – consists of

organization-wide efforts to “install and make permanent climate
where employees continuously improve their ability to provide on
demand products and services that customers will find of
particular value.”
• A process that stresses three principles:
1) Customer satisfaction
2) Continuous improvement
3) Employee involvement
 SIX SIGMA

Six Sigma – seeks to improve the quality of the output of a

process by identifying and removing the causes of defects and
minimizing impact variability in manufacturing and business
processes.
➢ It uses a set of quality management methods, mainly empirical,
statistical methods, and creates a special infrastructure of people
within the organization who are experts in these methods.
 QUALITY STANDARDS

Levels of quality standards:

• International Organizations for Standardization (ISO
9000)
• Industry specific
• Company specific
 INVENTORY MANAGEMENT

Lean manufacturing – a productive system whose

focus is on optimizing processes through the philosophy
of continual improvement.
Just-in-time (JIT) inventory management – focuses
on reducing inefficiency and unproductive time in the
production process to improve continuously the process
and the quality of the product or service.
 BLACK SWAN EVENTS

Nassim Nicholas Taleb (2007) outlined three defining attributes of

a black swan event:
1) Have the potential to exhibit drastic, wide-reaching
consequences.
2) Have a nature of unpredictability.
3) Typically be accompanied by “hindsight bias” meaning that
once the event has passed, many individuals tend to
rationalize that the event was actually predictable (due only to
the fact that they are now aware of what the outcomes from
the said event are).
 VINAMILK – FINANCIALS

2nd Quarter 2020 Revenue:

• Increase of 6.1% year-on-year
• Increase of 9.5% quarter-on-quarter

2nd Quarter 2020 Domestic Sales & Exports

• Increase of 12% year-on-year
• Increase of 26% percent quarter-on quarter

Profit increase of 3%

2020 Targets:
Revenue of VND59.6 trillion ($2.57 billion)
Earnings after tax of about VND10.69 trillion
 VINAMILK – “TRIPOD” STRATEGY

Success in navigating the impact of Covid-19:

I. Proactively source high-quality raw materials
II. Investing in production technology
III. Maintaining a strong domestic foundation
 WHITE SWAN?

Is Covid-19 a Black Swan event?

According to Taleb, a global pandemic is explicitly presented as a

White Swan: something that would eventually take place with
great certainty.
• Such acute pandemic is unavoidable, the result of the structure
of the modern world; and its economic consequences would be
compounded because of the increased connectivity and
overoptimization.
• As a matter of fact, the government of Singapore, whom we advised in the
past, was prepared for such an eventuality with a precise plan since as
early as 2010.
 BLACK SWAN
ASSIGNMENT

1) Research a company and study the impact Covid-

19 had?
2) How did the company respond to this event?
3) What lessons have they learned from this crisis?
4) What other potential Black Swan events are they
prepared for?