03-Outsourcing&GlobalSourcing Class Final

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Outsourcing, Offshoring and &
S m
Global Sourcing v i a
d e
a r
S h 03/02/15
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f il e
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Department of Marketing &
SCM 421 – We
Fallprovide
2014 unlocked studymaterials from popular websites at affordable price, email enquiries to [email protected]
Supply Chain Management
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Agenda r r .c
• Solution to Dupont Model discuss nb lu
• Group project – distribute and discussr tu
m a
• Outsourcing/Reshoring/Global Sourcing
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• i a
Submit groups – team name and members at end of
v
class. e d
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
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Next class will start with a 10 minute group meeting
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(READ the entire project guidelines thoroughly before
if le
then)– your choice of what you want to buy is due for
i s
approval at the beginning of class 9/9. First come, first
h
T
serve: one group per type of item.
SCM 421 – We
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Homework from Last Class –
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Reduce Materials Cost by 5% r.c
l u r
Net Income: $5,658,000 n b
Cost of Goods Sold: $18,038,000 r t u
m a
Materials Cost = 85% of COGS S
•What is the new COGS? v i a
d
•What is the new neteincome?
a r
S h
Current Assets i s = $10,151,000
ile$2,290,000
Inventory f=
i s
Total Assets
h = $34,628,000
T is the new Total Assets?
•What
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Review of Material Reduction Problem: m
o
Easy Participation Questions r.c r
bl u
• What elements are included in COGS? t un
a r
•
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What part of assets does purchasing influence?
• What additional information is needed to calculate the
a
ROA? v i
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i s
if le
i s
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SCM 421 – We
Fallprovide
Global Trends in Supply
Chain Management o m
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b lu
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• Friedman’s The World is Flat
a rtu
 Availability of information and communication
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i
has made international trade easier
v a

ed
e.g. Indian Call Centers
r
a
• Developing countries represent
h
s S
opportunities for cost savings
i
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 China and India are two well known examples
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 Regions such as Africa represent new
h
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opportunities
SCM 421 – We
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Survey of Country Choice and Location: o m
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Locations where respondents lur
have/intend to increase presence n b
r tu
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SCM 421 – We
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Easy Participation m
.c o
Questions r r
What are some key benefits of going international? lu
•
n b raw
t u
 Purchasing international: purchasing online, purchase
r
materials
m
 Outsourcing ： physically good, engineering
a activity, procurement,
a S
v i
new solution delivery to you organization,
scan the market for new opportunity,
more forward looking ,
sub contract
 Offshoring/ Nearshoring ：etruckd company move for you, outsource
a r
time zone. S h
to different countries, low cost, give out of control ;Mexico, same
i sWhat are some potential risks? Giving access

 Global sourcing:
to the data,
e terrors,
if lhigher
i s
Th
SCM 421 – We
Fallprovide
Example from Fiat for new family o m
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of automobiles l u r
• World car project 178 n b
r t u
• Family of models based on the same
m a
platform that could be sold identically
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crosscountry ia v
 5 models
e d
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Different than other automobile efforts that
had focused on common underbody
S h
is
• Worldwide supply network
 if le
Brazil plant given stamping operations to
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supply metal panels to South Africa, Poland,
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India, Venezuela, and Russia
 Codesign with Tier One suppliers to ensure
a “world” car perspective Department of Marketing &
SCM 421 – We
Fallprovide
Key Issues in Global Sourcing
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1. Incorporate risk and contingencies r r .c
into decisionmaking process b l u
tun
2. Global sourcing is not good or bad r
it is a potential solution to a ma
business need
a S
v i
3. There are many ranges of potential
e d
r
solutions across geographic
a
boundaries
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4. Think long term needs instead of
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short term cost reduction
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5. Complexity varies depending on
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location
SCM 421 – We
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Starting a Global Sourcing Strategy r .c
l u r
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• Domestic  Regional  Global rt u
 Going from domestic to global scale
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can be extremely complex
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 Going from domestic to regional or
e d
“mega” regional can be a good
a r
compromise
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• Start in a country that you have
s
i
if le
existing resources if possible
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• Developed countries are a good
Th
first step
SCM 421 – We
Fallprovide
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Designing a Global Sourcing
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Strategy r r .c
l u
• Configuration of the supply chain (Who,
b
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Where, What) rtu
 Physical Location of Mfg ma
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Physical location of other value added

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facilities. d
e

ar
Allocation of different production activities
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• Coordination (Why, How)
s S
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Continued operation of system in light of
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changing environment
Th
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Drivers of Global Location Decision
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• The rising cost of fuel, rising cost of labor, increased
r .c
transportation costs (Behar and Venables 2010; Fishman
l u r
2012);
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•
r t u
The slowing of the global supply chain due to the shipping
a
industry adoption of slow steaming (Hull 2005);
m
• S
The improving ratio of U.S. labor output /productivity per labor
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dollar (Anon 2012; Fishman 2012); v i
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Real and anticipated volatility in currency valuation (Culp
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2012);
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Increasing theft of intellectual property when dealing in global
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f i l e
regions (Clarke 2012; Riley and Vance 2012);
• The fast response time and leaner supply chain associated
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Th
with locating manufacturing closer to the end
customer/consumer (Williamson 2012)
SCM 421 – We
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Progressing to Global Sourcing
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• Specifications Critical r r .c
 Clear, Concise b lu
tun

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Don’t assume the supplier can meet
requirements mS
• Evaluate foreign companies as you
v i a
e d
would domestic organizations.
a r
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 Unit cost, quality specs
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 Include country and regional analysis
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• Relationship Management and Evaluation
b l u
un
 Crosscultural communication is often not easy
t
a
 Vision of shared goals change over time r
• Cultural understanding is important.S m
v i a
 Knowing where and how cultural differences will
e d
r
appear improves a buyer’s comfort and effectiveness
a
h
 Major complaint about Americans is our ignorance of
S
other culturesi s
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 How can cultural differences impact the buying
i s
Th
decision?

SCM 421 – We
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Progressing to Global Sourcingm
.c o
r r
b l u
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• Language and communication differences
r t
 Adjust your speaking style
m a

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The two largest differences in communication styles
v i
across countries are message speed and level of
content ed r
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SCM 421 – We
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• Logistical issues lu
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Don’t underestimate the effects of an extended
r t u
pipeline.
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Many foreign countries have less developed
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infrastructures than the U.S.
e d
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SCM 421 – We
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Port in China
We provide unlocked studymaterials from popular websites at affordable price, email enquiries to [email protected]
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• Legal issues b lu
tun
 U.S. has lengthier and more detailed contracts.
a r
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 Many foreign countries do not like to deal with
S
U.S. law and long contracts. a
v i
 Bribery is illegal in the U.S. (not always in other
e d
countries) a r
S h
 Intellectual property piracy
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Progressing to Global Sourcing m
.c o
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b l u
• Costs
t un
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Total cost in international purchasing is also called
landed cost m
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Many additional cost elements associated with global
sourcing. v i
e d
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Original Wire (Michigan)
o m
Per unit Annual cost .c(60,000
units) urr
b l
Unit cost $30.00 un
$1,800,000
t
a r
Packing cost $0.75 m $45,000
a S
vi
Tooling $0.10 $6,000
($6,000/60,000)
e d
Freight ($5.20/10) a r
$0.52 $31,200.00
S h
TOTAL COSTle i s $31.37 $1,882,200
f i
hi s
T
Second offer (China): $19.50 unit costs
Which supplier do you select?
Happy Lucky (China) Assembly Quote
Per unit Annual cost (60,000 units)
Unit cost $19.50 $1,170,000
Packing cost $2.00 $120,000
o m
Inland transport (3 cont. X $200 X 12 months) /
60000
$0.12 $7,200
r r .c
Freight forward fee ($100 / shipment X 12) / $0.02 $1,200
b lu
n
rtu
60000
Ocean transport ($4000 / cont.)
Marine Insurance $.50 per $100
$2.40
a$144,000
m $0.11 $6,450
a S
US. Port Handling ($1200 / cont.)
Customs Duty (5% X $19.5) v i $0.72
$0.98
$43,200
$58,500
Customs broker fees ($300)
e d $0.06 $3,600
a
US Transport Seattle to Detroit($18.6 / 10 units)r $1.86 $111,600
Warehouse Cost $1.00 per cubic foot
S h $0.50 $30,000
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(24x12X6) (need four weeks of inventory)
fil e
Cost of capital ($28.26 X (15%/6) $0.71 $42,600
i s
Cost of hedging ($400/5000) $0.08 $4,800
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Administrative time (4X$25)/5000 $0.02 $1,200
Travel ($20000) $0.33 $20,000
Tooling ($3000) $0.05 $3,000
TOTAL COST $29.46 $1,767,350
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Other Global Sourcing o m
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Considerations? b lu
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• Taxes
a rtu
• Child Labor
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• Reduced tariffs v i a
• Foreign Trade Zones e d
a r
•
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Border Zone factories (Macquiladores)
• CounterTrade i s
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• Risk s f
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• Supply Chain Variability
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SCM 421 – We
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Write up and turn in next week r .c
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• Team Name r t u
• Team Members: 45 per team m
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Next Class r r .c
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• InClass Group Meeting – first 10 minutes tun
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• Make versus Buy (In Class Work)
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 Maine Barnes Case (please PREREAD the case)
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SCM 421 – We
Fallprovide

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i sWhat are some potential risks? Giving access

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