In 1990, and with the advent of the concept of Supply Chain Management, the supply chain has been globalized. This has largely been enabled through information technology (separate subject articles). Globalization includes suppliers in various countries, setting up warehouses to serve global customers, creating a transportation system for moving goods around the world and moving production facilities to cost-saver countries. The best example of the cost of the country is Germany and Japan for machinery, USA for sophisticated hardware and software design, China for a high workforce content products and large heavy industry, Korea for shipbuilding and heavy industry, India for low-value software design , France and Italy for fashion luxury goods, and others.
Providing a network of researchers has documented the 15 choices you make when designing a global supply chain whether you do it explicitly or by default. This article will briefly describe this option 15 to help you optimize your global supply chain (minimize cost and maximize customer service). Option 15 is:
- Contribution value
- Core competence
Consolidation is a combination of assets to take advantage of economies of scale. You can combine production facilities into larger facilities, warehouses to larger warehouses, delivery by using larger vehicles or ships, suppliers and even software systems by replacing multiple systems with one ERP package. Consolidation has a negative aspect as well. Usually consolidation creates greater inventory, increases distance to customers and can reduce the ability to become responsive to customer needs.
Suspension is a form of consolidation. HP made its famous suspension by producing printers in one facility worldwide, shipping to a regional distribution center and letting DCs adjust each printer by placing it in an appropriate power supply and packaging. By delaying the final product, a company can produce little effect on the unit (SKU), and therefore take advantage of economies of scale in production. The shipping cost can be lower because the product can be massively packed, the deeper the container. This delay also reduces the SKU, reducing inventory investment. The decline in inventory investment occurs, not because there is less SKU for stocks, as demand is still the final demand, but because the SKU is delayed it is basically incorporating a variation of the final adjusted product, which reduces the safety stock built into most inventories rearranging the system point. Suspension is a very big strategy if your product can be designed for modular production types. In other words, there is no disadvantage to using a delay strategy in your product development plan.
- Responsive, lean-ness, agility, adaptation, flexibility and speed are all related, with subtle differences.
- Responsiveness is the ability to react to customer requests. It can react to customer orders, change customer tastes, or change products and services to meet customer’s specific needs. A responsive organization places great value on customer service.
- Lean-ness is a strategy to reduce waste in all processes. Developed by Toyota, is a streamlined system design process that minimizes inventory, wasted and waits by customers.
- Agility is the ability to reconfigure your supply chain, changing suppliers, designs and production facilities necessary to meet customers’ changing needs and demands.
Adaptation is an aspect of organizational culture and supply chain. Adaptation enables companies to overcome challenges, such as disruptions in the supply chain. A great example is the technology industry. Due to margin pressure, many basic components must be consolidated to one or two suppliers in the world and these companies have consolidated production into one of the facilities around the world. Certain chipsets, hard drives, screens, capacitors, and so on, have not been consolidated into a single facility. When mobile fab chips in Mexico are on fire, some companies are built into excessive backup systems and are able to adapt. When there is a flood in Thailand and some hard drive plants are under water, some companies are adapted using different technologies (solid-state hard drives) in their products.
Flexibility is closely related to agility, but is often associated with volume changes. A flexible supply chain can increase or decrease the required output due to the flexibility it is designed into the process.
Speed is pretty clear. However, in global supply chain management it has been defeated by economies of scale as the main differentiator. Michael Porter, in the seminal book, a competitive strategy, is considered economies of scale as a difficult barrier for newcomers to overcome. But in today’s technologically driven economy, companies can cope with economies of scale. For example, Facebook changes the Product (code) every day. New features are added, and unemployed people are deleted every day of the year (including weekends). Speed in the supply chain values ability to react quickly and serve customers quickly over the cost of minimization.
The value of contributions, core competencies, differentiation and collaboration are related strategies.
Value contribution is a unique value that adds a supply chain company. This is the reason that the company is part of the supply chain. Contribution value often comes from other strategic decisions. Value can cost less, flexible services or core competencies in design and engineering. As mentioned above, in the global supply chain there are many other options of our supply chain partners. This option allows the company to select the supplier that adds the highest value.
However, it also allows them to select which customers can add the greatest value. It may seem absurd … that companies can choose customers, but how many companies make big bets become part of Dell’s supply chain, not Apple’s? How many companies give up in US-based car manufacturers support Toyota Honda Nissan, only to see Ford and GM boost share market after the 2009 recession?
Core competencies are often considered corporate trade secrets. This is what a company will not share with our supply chain partners. From a global perspective, core competencies are often kept in the country to prevent theft of intellectual property.
Differentiation is how you difference your company from competitors and securely places you in the supply chain. Price, quality, service, design and technology are all potential differentiators.
Collaboration is a degree that you work with our supply chain partners. Companies can collaborate by sharing production capacity to eliminate the need to build additional facilities. Our supply chain partners often collaborate on new product development. Third-party logistics providers (3PLs) use scale in purchasing and handling of economic logistics to reduce costs for their customers, who collaborate on logistics requirements and capabilities. Collaborative planning and forecasting are different processes of supply chain encyclopes of single forecast settings and all production or purchases for this forecast. Collaboration also requires trust. Collaborating companies deliver sensitive data, such as forecasts requests, new product plans and internal process details.
Hedging, redundancy and diversification are all ways to manage risk. Risk is the probability that action will have negative results.
These hedges are often done with insurance and financial products. Companies can buy insurance for hedging against disasters or cessation of work. They can also buy financial products to offset the movement of commodity prices or currency values. By definition a hedge will always have a minimal cost, as most companies are offsetting a higher cost of risk, with the price of hedging instruments.
Redundancy builds backup capabilities in the supply chain. Redundancy can be in a backup power plant, which is required in many developing countries because supply is unreliable. A company can have two suppliers, primary and secondary, with secondary being a reserve in case of supply disruption with a major supplier. Redundancy can be considered as opposed to consolidation.
Diversification is a form of redundancy. However, this surpasses excessive supply. Companies can diversify product offerings, to ensure that if technology kills from one business, it supports another. A company can diversify the supply chain it belongs to, in the case of a competitor’s single-focus becomes dominant. For many years suppliers for Toyota and Honda benefited versus suppliers for Ford and GM. However, now, suppliers for Hyundai benefit by sacrificing Toyota and Honda. Companies that diversify their customers and supply chains are fenced off against their companies’ focus on losing business.