Lecture Outline ProcurementE-ProcurementDistributionTransportationThe Global Supply Chain

ProcurementProcurementProcurement is the purchase of goods and Services

from suppliers

Cross-enterprise TeamIs a key element in the development of a good

partnership between a company and its supplier via Coordinate their procurement processes.

On-demand (direct-response) deliveryRequires the supplier to deliver goods when demanded

by the customer. On-demand will minimize inventory level/operation. Direct-response support (JIT)

Continuous replenishment Supply orders in a short period of time according to a

predetermined schedule.

OutsourcingOutsourcingSourcing

selection of suppliers

Outsourcingpurchase of goods and services that were originally

produced in-house from an outside supplier

Core competencieswhat a company does best

Single sourcinga company purchases goods and services from only a

few (or one) suppliers. Example if only one local agent monopolize the market

Categories of Goods and ServicesCategories of Goods and ServicesCategory Description Example

Original Equipment Manufacturer (OEM)

Goods and services that go directly into production of a product

parts, fabrication, component . etc..

Maintenance, Repair and Operation (MRO)

Indirect goods and Services that do not directly go into a product .

office suppliers, furniture, air ticket, janitorial Service. etc..

Corporate ServicesServices that support the Supply chain

Distribution, Warehouse, Information System. etc..

E-ProcurementE-ProcurementE-Procurement is direct purchase from suppliers

over internet by using software packages or through e-marketplace, e-hubs, and trading exchanges.

That can streamline and speed up the purchase order and transaction process.

What can companies buy over the internet?

Manufacturing Inputs. The raw materials and components that go directly into the

production process of the product.

Operation Inputs. Maintenance, repair, and operation goods and services.

E-ProcurementE-ProcurementE-Marketplace (e-hubs)

Websites where companies and suppliers conduct business-to business activities.

Reverse Auction. Process used by e-marketplaces for buyers to purchase items;

company posts orders on the internet for suppliers.

E-procurementE-procurement

Cont. E-procurementCont. E-procurement

Cont. E-procurementCont. E-procurement

DistributionDistributionDistribution is encompasses all channels,

processes, and functions, including warehousing

and transportation, that a product passes on its

way to final customer often called “logistics”

LogisticsTransportation and distribution of goods and

services.

Order FulfillmentProcess of ensuring on-time delivery of an order.

Distribution Centers (DC) and Distribution Centers (DC) and WarehousingWarehousing

DCs typically is incorporate warehousing and

storage, are building that are used to receive ,

handle , store, package , and then shipping. Trend to distribute goods for more frequent order s

in smaller amount and higher customer services.DCs must be set up as “flow-through” facilities and

automated material handling.

Postponement Final assembly and product configuration may be

done in DC

Highly automated system that runs day-to-day

operations of a DC

Controls item putaway, picking, packing, and

shipping

Featurestransportation managementorder managementyard management labor managementwarehouse optimization

Vendor - Managed Inventory (VMI)Vendor - Managed Inventory (VMI)With VMI Manufacturer generate orders, not

distributors or retailers.

Stocking information is accessed using Electronic Data Interchange (EDI). Manufacturer receive information via EDI about

distributor s’ sales and stock level .Manufacturer can use this information to create

and maintain a forecast and inventory plan.

VMI a first step toward supply chain collaboration.

VMI increased processing speed, reduced data entry errors, and improved services.

Collaborative Logistics and Collaborative Logistics and Distribution Outsourcing Distribution Outsourcing

Collaborative planning, forecasting, and replenishment create greater economies of scale.

Internet – based exchange of data and information.

Significant decrease in inventory levels and costs and more efficient logistics.

Companies focus on core competencies.

TransportationTransportationRail

low-value, high-density, bulk products, raw materials, intermodal containers

not as economical for small loads, slower, less flexible than trucking

Trucking main mode of freight transport in

U.S. small loads, point-to-point service,

flexible More reliable, less damage than

rails; more expensive than rails for long distance

Cont. TransportationCont. TransportationAir

most expensive and fastest, mode of freight transport

lightweight, small packages <500 lbs

high-value, perishable and critical goods

less thef

Package Deliverysmall packagesfast and reliableincreased with e-Businessprimary shipping mode for Internet

companies

Waterlow-cost shipping modeprimary means of international

shippingU.S. waterwaysslowest shipping mode

Intermodalcombines several modes of shipping-

truck, water and railkey component is containers

Pipelinetransport oil and products in liquid

formhigh capital cost, economical uselong life and low operating cost

Cont. TransportationCont. Transportation

Internet Transportation ExchangeInternet Transportation ExchangeInternet transportation exchanges bring together

shipper who post loads and carriers who post their available capacity in order to arrange shipments.

Examples.. www.nte.com www.freightquote.com

Global Supply ChainGlobal Supply ChainThere are a number of factors have combined to

create a global marketplace such as:

International trade barriers have fallen.New trade agreements between countries and

nations have been established.To compete globally requires an effective supply

chain.Information technology I an “enabler” of global

supply chain.No tariffs or duties

Obstacles to Global Chain Obstacles to Global Chain TransactionsTransactionsIncreased documentation for invoices, cargo

insurance, letters of credit, ocean bills of lading or air waybills, and inspections.

Ever changing regulations that vary from country to country that govern the import and export of goods.

Trade groups, tariffs, duties, and landing costs.

Limited shipping modes.

Differences in communication technology and availability

Cont. Obstacles to Global Chain Cont. Obstacles to Global Chain TransactionsTransactionsDifferent business practices as well as language barriers.

Government codes and reporting requirements that vary from country to country.

Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies.

Since 9/11, numerous security regulations and requirements

Duties and Tariffs Duties and Tariffs Tariffs (duties) is taxes on imported goods.

Proliferation of trade agreements.

Nations form trading groups.No tariffs or duties within group.Charge uniform tariffs to nonmember.

Member nations have a competitive advantage within the group.

Trade specialists include freight forwarders, customs house

brokers, export packers, and export management and trading companies

Duties and Tariffs (cont.)Duties and Tariffs (cont.)

APECAPEC

ASEANASEAN

ANZCERTAANZCERTA

FTAAFTAA

NAFTANAFTA

CALMCALM

ATPAATPA

MERCOSURMERCOSUR

TAFTATAFTA

Global Trading Groups (Customers Global Trading Groups (Customers Unions)Unions)

Landed CostLanded CostTotal cost of producing, storing, and transporting a

product to the site of consumption or another port.

Value added tax (VAT)an indirect tax assessed on the increase in value of a

good at any stage of production process from raw material to final product.

Web-based International Trade Web-based International Trade logistic Systemlogistic SystemInternational trade logistics web-based software

systems reduce obstacles to global trade.Convert language and currency.Provide information on tariffs, duties and customers

processes.Attach appropriate weights, measurements, and unit

price to individual products ordered over the web.Incorporate transportation costs and conversion rates.Calculate shipping costs online while a company enters

an order.Track global shipments.

Recent Trends in Globalization for Recent Trends in Globalization for U.S. CompaniesU.S. CompaniesTwo significant changes promoted many USA

Companies to expand globally.passage of North America Free Trading Agreement

NAFTAadmission of China in WTO

Electronic Industry70% of cost is in componentsmajor supply chains have moved to China

Proliferation of counterfeit parts

China’s Increasing Role in the China’s Increasing Role in the Global Supply ChainGlobal Supply ChainWorld’s major source of supply.

Abundance of low –wage labor.

World’s fastest growing market.

Regulatory changes have liberalized its market.

Increased exporting of higher technology products.

Models in Doing Business in ChinaModels in Doing Business in ChinaEmploy local third-party trading agents.

Wholly-owned foreign enterprise.

Develop your own international procurement offices.

Challenges of sourcing from chinaChallenges of sourcing from chinaGetting reliable information in more difficult than in

the U.S.

Information technology is much less advanced and sophisticated than in U.S.

Work turnover rates among low skilled workers is extremely high.

Global Terrorism and Global Global Terrorism and Global ChainsChainsIncrease Security Measures.

Added time to supply chain schedules.Increased supply chain costs.

24 hours rules for “risk screening”.Extended documentation.Extend time by 3-4 days.

Inventory Levels have increased 5%.

Other Costs include: new people, technologies, equipment, surveillance, communication, and security systems.. etc.