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Global Supply Chain Configurations In The Manufacturing Industry

Local-GlobalGlobal supply chain management refers to exchanging information and coordinating efforts with suppliers and customers, in order to support globalization strategies determined by companies. Globalization does not only refer to the act of selling all around the world, but also to sourcing and manufacturing on the global scale, and all of this needs to be coordinated flawlessly.

Within this context, a recent book and an  article we published (Golini, 2011; Caniato, Golini and Kalchschmidt, 2013) provides a conceptualization of the above-mentioned phenomena and ends up with the guidelines considered to be useful for companies in supporting their globalization strategies. First of all, four different global supply chain configurations are identified. Next, for each configuration, the best investments in the supply chain that aim to improve performance are defined. Finally, the effect of contextual variables is taken into account, and, in particular, it shows that the structure of the supply chain from one end to another (also called the value chain) holds a crucial role. The results are supported by empirical data from an international survey (International Manufacturing Strategy Survey).

The four global supply chain configurations identified

Four main configurations of global supply chain according to the percentage of sourcing, manufacturing and sales outside the continent are identified (See Figure). These configurations have been labeled and defined as follows:

  • Locals: local sourcing, manufacturing and distribution;
  • Barons: local sourcing and manufacturing, global distribution;
  • Shoppers: global sourcing, local manufacturing and distribution;
  • Globals: global sourcing, manufacturing and distribution.

Next, we considered the investments made to manage effectively the supply chain. This investments are classified in:

  • Sourcing-related investments, that are coordination of the flows of goods and information with suppliers, suppliers development, specific supply strategies and risk management;
  • Distribution-related investments, that are coordination of the flows of goods and information with customers and specific distribution strategies.

Locals, as a general tendency, invest less than the others; specifically, Locals invest less than Shoppers on supplier development and distribution strategy; Locals invest less than Barons in coordination with suppliers; Locals invest less than Globals in supplier development.

Finally, looking at the performance (cost, quality, delivery, lead time, flexibility), we found that every cluster can benefit from investment in the supply chain, usually in more than one performance indicator. However, looking at each cluster we found more detailed results. In particular,:

  • Locals can further improve their delivery, lead time and quality performance if they review their distribution strategy and implement supplier development;
  • Barons, on the contrary, should be careful about investment in coordination with suppliers and customers, as this appears to be detrimental for their quality performance;
  • Shoppers benefit from every supply chain investments, without specific areas that are more or less beneficial;
  • Globals receive very little help from investments in the supply chain, as their effect is limited to improve flexibility performance. Probably, this can depend on the many different sub-configurations that Globals can have and that make investment in the supply chain more or less beneficial.

This work offers a new perspective on global supply chain management useful for research and practice. Results provide evidence of the different configurations of globalization that can and are adopted by firms, providing some hints on the characteristics of each of them, which can help managers to define their globalization strategy. Moreover, this research shows which investments in the supply chain are more beneficial to improve the performance according to the different configurations.

References

Caniato, F., Golini, R., Matteo, K., 2013. The effect of global supply chain configuration on the relationship between supply chain improvement programs and performance. International Journal of Production Economics, Vol. 143, No. 2, pp. 285-293.

Golini, R., 2011. Global Supply Chain Management In The Manufacturing Industry: Configurations, improvement programs and performance. Sestante – Bergamo University Press, Bergamo.

Vendor Managed Inventory for Global Sourcing Companies


By Ruggero Golini and Martina Lozza, Università degli Studi di Bergamo
 

Vendor Managed Inventory (VMI) is an operating model in which the supplier delivers its good to the customer but the actual sale is postponed after the actual use/sale by the customer. The supplier, which can be a manufacturer, reseller or a distributor monitors the customer’s inventory levels and makes inventory replenishment decisions regarding order quantities, shipping and timing.

The advantages of implementing VMI program can be summarized as: reduced inventory costs, better response to market changes, reduction in demand uncertainty and more flexibility in production planning and distribution.

Recentely, we focused on how VMI can support global sourcing.

As we know, there are several reasons for adopting global sourcing such as lower prices, quality technology access, access to new markets, shorter product development and life cycles, comparative advantage. However, the adoption of global sourcing often leads to some problems such as increase of inventory level because of the average inventory level depends on the supply lead time and variability, which get higher when the distance between supplier and buyer increases.

According to our analysis, the implementation of VMI can be a very effective way to reduce the inventory level for global sourcing companies.

We used the fifth edition of the International Manufacturing Strategy Survey (www.manufacturingstrategy.net) and we picked the companies with a relevant adoption of global sourcing (more than 30% of their purchases comes from outside the continent). We can see that 75% of the companies uses VMI with suppliers but only 26% declare to have a high and spread adoption.

The next histogram shows the average level of inventory (measured in days of production carried in the material and components inventory) and it is evident that when the VMI is highly implemented the inventory level decreases significantly.

Obviously implementing VMI when suppliers are far away can be difficult due to geographical and linguistic distance and the necessary conditions have to be met. However the positive impact VMI is remarkable and, especially when holding inventories is costly (like in these days), global sourcing companies should definitely consider VMI into their supply chain investments portfolio.

Bibliography

Danese, P. 2006. The extended VMI for coordinating the whole supply network. Journal of Manufacturing Technology Management 17 (7), 888–907.

Disney, S.M., Towill, D.R. 2003. The effect of vendor managed inventory (VMI) dynamics on Bullwhip Effect in supply chains. International Journal of Production Economics, Volume 85, Issue 2, pp. 199-215.

Golini, R., Kalchschmidt, M., 2011. Moderating the impact of global sourcing on inventories through supply chain management. International Journal of Production Economics, 133, 86-94.

Sustainable supply chain: a new business challenge

May 14, 2012 1 comment

Nowadays, companies are increasingly scrutinized by various audience (e.g., NGOs, Social Media) and are held responsible for environmental and social performance of their suppliers (e.g., Apple, 2006; Nike 2007; Mattel, 2007; Victoria’s Secret, 2011). This is the life cycle perspective: products (and the company that is manufacturing them) cannot be truly defined sustainable whether purchased components are not designed and produced in a sustainable way.

A recent post on software advice discusses the “conversations that must occur within supply chain … to become synonymous with … socially-responsible business”. The post focuses on three main points:

  • Measuring sustainability performance: as described by Wal-Mart, indexing environmental and social performance throughout the supply chain is essential to instill sustainability into suppliers, lead higher quality and lower costs, and to help customers in their buying decisions;
  • Developing trust and value-added relationships along the value chain: when a sustainable supply chain has to be developed, ensuring the quality of the product and the sustainability of the operational process might be as much of an issue as building partnerships and prescribe suppliers’ commitment;
  • Innovating toward sustainability: addressing sustainability further upstream – at the level of product and components design – can lead to an improved sustainability as well as costs savings. A good example for that is the case of Ikea: they are looking to replace wood pallets with cardboard ones. The company expects to reduce its carbon footprint and cut its transport bills by 140 million Euro a year (look at this recent post).

However, the above conversions are difficult to develop and “supply chain management” is actually the least area in which sustainability has been integrated  (i.e., McKinsey survey, Exhibit 2). First, measuring sustainability is not so straightforward: on one hand it increases upstream competition (e.g., look at the post “Indexing sustainability” by The Operation Room), and on the other new criteria and assessment procedures have to be developed (e.g., look at the post “Sustainability index hiccups” by The Operation Room). Then,  the evolution of sourcing strategies and the inclusion of sustainability requires a transitory period necessary for companies to change  the focus of their actions (e.g., from a focus on products and suppliers to a focus on relationships and supplier networks in a long-term perspective; from the procurement of standardized inputs to joint-value creation methodologies). For instance, according to a recent post by Harvard Business Review, “nowadays innovation partnerships with vendors don’t yet represent a procurement priority” and “business world  innovations occurs when we bypass or disintermediate  procurement … this is somewhat contrasting: vendor/partners — who are compensated by procurement — end up having to explain away or conceal the bootleg or graymarket innovation projects they’re billing for … This dynamic is unsustainable… procurement has to become a genuine facilitator, enabler and champion of the innovation ecosystem”.

Thus, to effectively pursue the above supply chain conversions, companies need a transitory period for developing new capabilities (note that, according to exhibit 5 of McKinsey survey, three of the barriers that prevent companies from capturing potential value from sustainability initiatives are: the lack of key performance indicators, insufficient resources and lack of right capabilities and/or skills).

Sustainable supply chain management (SSCM) is also increasingly debated by academicians: more than three hundred papers were published on such issues during the last decade (e.g., Seuring and Müller, 2008). During the conference organized by the International purchasing and supply Education and Research Association (i.e., 2012 IPSERA conference), 17 papers (out of 124) were presented that deal with supply chain sustainability, witnessing that the academic community is greatly interested to the topic. Among the others, the empirical research that has won the 2012 IPSERA best paper award (i.e., Golini et al., 2012) offers relevant contributions on supply chain conversions and the role of companies’ supply management capabilities. Specifically, the paper points out that, although internal investments (e.g., initiatives to improve social reputation as well as initiatives to reduce energy consumption and waste of internal operations) represent the first step toward sustainability, industrial firms should then focus on supply chain management investments (e.g., restructuring the supply base, improving suppliers’ selection, development and coordination) and sustainable supply chain management initiatives (e.g., monitoring CSR of upstream partners, developing life cycle analysis involving suppliers) since they significantly contribute to firms’ sustainability performance. On one hand, SCM investments help in (1) improving companies’ ability to manage strategic supply relationships for sustainability and innovation (2) increasing visibility and reducing moral hazard within supply chain, as well as (3) improving cooperation and inter-organizational learning among partners. On the other, SSCM initiatives entail problem-solving routine involving suppliers and can instill additional capabilities in the company’s organization.

Concluding, supply chain sustainability seems to be the new business challenge: it represents a big opportunity for companies to improve their footprint and to increase their competitive advantage. Nevertheless, firms should wonder whether they hold the right level of resources and capabilities before to rely on SSCM investments.

 

References:

Seuring, S. and M. Müller (2008). From a literature review to a conceptual framework for sustainable supply chain management. Journal of Cleaner Production 16, 1699-1710.

Golini, R., Gualandris, J., Kalchschmidt, M., 2012. Sustainable supply chain management: the role of supply chain management investments and of Global sourcing. IPSERA proceedings ISBN 978-88-495-2346-1, April 2012 Naples (I).

Threats of local sourcing (without a strategic approach)

January 16, 2012 Leave a comment

Lead times are a major concern when selecting suppliers’: lower lead times induce lower inventories and allow being more flexible.

On the other side competitive pressures (lower costs, higher quality, and innovativeness) drive many companies in scouting suppliers abroad and this practice may cause higher procurement lead times mainly because of geographical distances.

Using data gathered in 2005 from 660 companies operating in the manufacturing industry from 21 countries, we analyzed the relationship between global sourcing and procurement lead time.

What we found in our data is the presence of three groups of companies according to the importance given to suppliers’ physical proximity and level of local sourcing:

Group name

Importance given to physical proximity in suppliers’ selection

Level of local sourcing

Globals

Low

Low

Patriots

High

High

Idlers

Low

High

Interestingly, among local sourcing companies, there are those doing this strategically (“Patriots”) and those who don’t (“Idlers”). Our analyses show that Idlers have the worse performance, not only in terms of procurement lead time, but also manufacturing lead time, delivery speed and manufacturing conformance.

On the other side Globals and Patriots are able to keep similar performance. Globals tend to use share more information and use eBusiness tools with suppliers while Patriots rely more on Just-In-Time practices.

In conclusion, this study highlights the importance of choosing carefully a local/global sourcing strategy and to consider how it can be supported by leveraging on right supply chain management tools.

From:

Golini, R., Kalchschmidt, M., 2009. Threats of Sourcing Locally Without a Strategic Approach: Impacts on Lead Time Performances, In: Gerald, R. (Ed), Rapid Modelling for Increasing Competitiveness, pp. 277-292

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