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7/26/2019 Supply Chain Management, in Planning Production and Inventory Control
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SUPPLYSUPPLYCHAINCHAIN
MANAGEMENMANAGEMEN
TT
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Lecture OutlineLecture Outline
Supply Chain Management Information Technology: A Supply ChainEnabler
Supply Chain Integration Suppliers E-Procurement Distribution Supply Chain Management Software Measuring Supply Chain Performance Global Supply Chain
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Supply ChainSupply Chain
All facilities, functions, activities,All facilities, functions, activities,associated with flow andassociated with flow and
transformation of goods and servicestransformation of goods and services
from raw materials to customer, as wellfrom raw materials to customer, as wellas the associated information flowsas the associated information flows
An integrated group of processes toAn integrated group of processes to
source, make, and deliversource, make, and deliver
productsproducts
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Supply Chain IllustrationSupply Chain Illustration
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Supply Chain for Denim JeansSupply Chain for Denim Jeans
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Supply Chain for Denim Jeans ..Supply Chain for Denim Jeans ..
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Supply Chain ProcessesSupply Chain Processes
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More difficult than manufacturingMore difficult than manufacturingDoes not focus on the flow of physicalDoes not focus on the flow of physical
goodsgoods
Focuses on human resources andFocuses on human resources and
support servicessupport services
More compact and less extendedMore compact and less extended
Supply Chain for Service ProvidersSupply Chain for Service Providers
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Value chainValue chain Every step from raw materials to theEvery step from raw materials to the
eventual end usereventual end user
Ultimate goal is delivery of maximum valueUltimate goal is delivery of maximum value
to the end userto the end user
Supply chainSupply chain Activities that get raw materials andActivities that get raw materials and
subassemblies into manufacturingsubassemblies into manufacturingoperationoperation
Terms are used interchangeablyTerms are used interchangeably
Value vs. Supply ChainValue vs. Supply Chain
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Managing flow of information through supplyManaging flow of information through supply
chain in order to attain the level ofchain in order to attain the level of
synchronization that will make it moresynchronization that will make it more
responsive to customer needs while loweringresponsive to customer needs while lowering
costscostsKeys to effective SCMKeys to effective SCM
InformationInformation
CommunicationCommunication
CooperationCooperation
TrustTrust
Supply Chain Management (SCMSupply Chain Management (SCM
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One goal in SCM:One goal in SCM: Respond to uncertainty inRespond to uncertainty incustomer demand withoutcustomer demand without
creating costly excesscreating costly excess
inventoryinventory
Negative effects ofNegative effects ofuncertaintyuncertainty LatenessLateness
Incomplete ordersIncomplete ordersInventoryInventory
Insurance against supplyInsurance against supplychain uncertaintychain uncertainty
Contributing factorsContributing factorsto uncertaintyto uncertainty Inaccurate demandInaccurate demandforecastingforecasting
Long variable lead timesLong variable lead times Late deliveriesLate deliveries Incomplete shipmentsIncomplete shipments Product changes batchProduct changes batch
orderingordering Price fluctuations andPrice fluctuations anddiscountsdiscounts
Inflated ordersInflated orders
Supply Chain !ncertaintySupply Chain !ncertainty
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Occurs when slight demand variabilityis magnified as information movesback upstream
"ull#hip $ffect"ull#hip $ffect
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Information links all aspectsInformation links all aspectsof supply chainof supply chain
E-businessE-business Replacement of physicalReplacement of physicalbusiness processes withbusiness processes withelectronic oneselectronic ones
Electronic data interchangeElectronic data interchange(EDI)(EDI) A computer-to-computerA computer-to-computer
exchange of businessexchange of businessdocumentsdocuments
Bar code and point-of-saleBar code and point-of-sale Data creates an instantaneousData creates an instantaneouscomputer record of a salecomputer record of a sale
Radio frequencyRadio frequencyidentification (RFID)identification (RFID) Technology can send productTechnology can send productdata from an item to a readerdata from an item to a readervia radio wavesvia radio waves
InternetInternet
Allows companies toAllows companies tocommunicate with suppliers,communicate with suppliers,customers, shippers and othercustomers, shippers and otherbusinesses around the world,businesses around the world,instantaneouslyinstantaneously
Information %echnology& ' SupplyInformation %echnology& ' SupplyChain $nalerChain $naler
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Cost savings and price reductions Reduction or elimination of the role ofintermediaries
Shortening supply chain response andtransaction times
Gaining a wider presence andincreased visibility for companies
Greater choices and more information
for customers
$)usiness an* Supply Chain$)usiness an* Supply Chain
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Improved service as a result of instantaccessibility to services
Collection and analysis of voluminousamounts of customer data and
preferences Creation of virtual companies
Leveling playing field for small companies
Gaining global access to markets,suppliers, and distribution channels
$)usiness an* Supply Chain ..$)usiness an* Supply Chain ..
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Source: F. Keenan, Logistics Gets a Little Respect, Business Week (November 20, 2000), pp. 11211!.
Supply Chain Evolution at NabiscoSupply Chain Evolution at Nabisco
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Source: F. Keenan, Logistics Gets a Little Respect, Business Week (November 20, 2000), pp. 11211!.
Supply Chain Evolution at Nabisco..Supply Chain Evolution at Nabisco..
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Source: F. Keenan, Logistics Gets a Little Respect, Business Week (November 20, 2000), pp. 11211!.
Supply Chain Evolution at Nabisco..Supply Chain Evolution at Nabisco..
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+,ID Capailities+,ID Capailities
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+,ID Capailities (cont.+,ID Capailities (cont.
Build to order cars over theBuild to order cars over the
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Build-to-order cars over theBuild-to-order cars over the
InternetInternet
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Customer sales
Production
Distribution
Customerrelationship
Customer sales
Production
Distribution
Customerrelationship
Pushsell from
inventory stock
Goal of even andstable production
Mass approach
Dealer-owned
E-Automotive
Pullbuild-to-order
Focus on customerdemand, respond with
supply chain flexibility
Fast, reliable, and
customized to get carsto specific customer
location
Shared by dealers and
manufacturers
AutomotivePast
Supply ChainProcesses
$)automotive Supply Chain$)automotive Supply Chain
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Managinguncertainty
Procurement
Productdesign
Managing
uncertainty
Procurement
Product
design
Large car
inventory atdealers
Batch-oriented;dealers order
based onallocations
Complexproducts dont
match customerneeds
E-Automotive
Small inventories with
shared information andstrategically placed partsinventories
Orders made in real time
based on available-to-promise information
Simplified products based onbetter information about what
customers want
AutomotivePast
SupplyChain
Processes
E-automotive Supply Chain (cont.)E-automotive Supply Chain (cont.)
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Information sharing among supply chain membersInformation sharing among supply chain members Reduced bullwhip effectReduced bullwhip effect
Early problem detectionEarly problem detection
Faster responseFaster response
Builds trust and confidenceBuilds trust and confidence
Collaborative planning, forecasting, replenishment,Collaborative planning, forecasting, replenishment,and designand design
Reduced bullwhip effectReduced bullwhip effect Lower Costs (material, logistics, operating, etc.)Lower Costs (material, logistics, operating, etc.)
Higher capacity utilizationHigher capacity utilization
Improved customer service levelsImproved customer service levels
Supply Chain IntegrationSupply Chain Integration
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Coordinated workflow, production and operations,Coordinated workflow, production and operations,
procurementprocurement
Production efficienciesProduction efficiencies
Fast responseFast response
Improved serviceImproved service Quicker to marketQuicker to market
Adopt new business models and technologiesAdopt new business models and technologies
Penetration of new marketsPenetration of new markets Creation of new productsCreation of new products
Improved efficiencyImproved efficiency
Mass customizationMass customization
Supply Chain Integration -Supply Chain Integration -
ll i l i iC ll i Pl i , i
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Process for two or more companies in aProcess for two or more companies in asupply chain to synchronize their demandsupply chain to synchronize their demand
forecasts into a single plan to meetforecasts into a single plan to meet
customer demandcustomer demandParties electronically exchangeParties electronically exchange
Past sales trendsPast sales trends
Point-of-sale dataPoint-of-sale data On-hand inventoryOn-hand inventory
Scheduled promotionsScheduled promotions
ForecastsForecasts
Collaorative Planning ,orecastingCollaorative Planning ,orecasting
an* +eplenishmentan* +eplenishment
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ProcurementProcurement Purchase of goods and services from suppliersPurchase of goods and services from suppliers
On-demand (direct response) deliveryOn-demand (direct response) delivery
Requires supplier to deliver goods whenRequires supplier to deliver goods whendemanded by customerdemanded by customer
Continuous replenishmentContinuous replenishment
Supplying orders in a short period of timeSupplying orders in a short period of time
according to a predetermined scheduleaccording to a predetermined schedule
Cross-enterprise teams coordinate processesCross-enterprise teams coordinate processes
between company and supplierbetween company and supplier
SuppliersSuppliers
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SourcingSourcing Selection of suppliersSelection of suppliers
OutsourcingOutsourcing
Purchase of goods and services from anPurchase of goods and services from anoutside supplieroutside supplier
Core competenciesCore competencies
What a company does bestWhat a company does bestSingle sourcingSingle sourcing
A company purchases goods and servicesA company purchases goods and servicesfrom only a few (or one) suppliersfrom only a few (or one) suppliers
OutsourcingOutsourcing
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Original EquipmentManufacturer(OEM)
MaintenanceRepair and
Operation (MPO)
CorporateServices
OutsourcingOutsourcing
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Direct purchase from suppliers over theInternet
Direct products go directly into production
process a product, indirect products notE-marketplaces
Web sites where companies and suppliers
conduct business-to-business activitiesReverse auction
A company posts orders on the Internet for
suppliers to bid on
$)Procurement$)Procurement
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Online Sourcing/Procurement ProcessOnline Sourcing/Procurement Process
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Online Sourcing/Procurement Process (cont.
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Online Sourcing/ Procurement Process (cont.Online Sourcing/ Procurement Process (cont.
+elationship et#een ,acilities an* ,unctions+elationship et#een ,acilities an* ,unctions
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Source:"#apte# $rom Garrison %ielan# $or %al&'arts *ppl+ -ain,Harvard Business Review 0(2/ 'arc-"pril 12), pp. 01.
+elationship et#een ,acilities an* ,unctions+elationship et#een ,acilities an* ,unctions
along the 0al)Mart Supply Chainalong the 0al)Mart Supply Chain
i i i
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ncompasses all c-annels, processes, an#ncompasses all c-annels, processes, an#$*nctions, incl*#ing 3are-o*sing an#$*nctions, incl*#ing 3are-o*sing an#transportation, t-at a pro#*ct passes on its 3a+ totransportation, t-at a pro#*ct passes on its 3a+ to
$inal c*stomer$inal c*stomer
4$ten calle# logistics4$ten calle# logistics
LogisticsLogistics
5ransportation an# #istrib*tion o$ goo#s an#5ransportation an# #istrib*tion o$ goo#s an#servicesservices
6riving $orce to#a+ is spee#6riving $orce to#a+ is spee#
7artic*larl+ important $or 8nternet #ot&coms7artic*larl+ important $or 8nternet #ot&coms
DistriutionDistriution
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Amazon.com
Di t i ti C t (DCDi t i ti C t (DC
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6s are some o$ t-e largest b*siness6s are some o$ t-e largest b*siness$acilities in t-e 9nite# tates$acilities in t-e 9nite# tates
5ren# is $or more $re:*ent or#ers in smaller5ren# is $or more $re:*ent or#ers in smaller
:*antities:*antities Flo3&t-ro*g- $acilities an# a*tomate#Flo3&t-ro*g- $acilities an# a*tomate#
material -an#lingmaterial -an#ling
7ostponement7ostponement
Final assembl+ an# pro#*ctFinal assembl+ an# pro#*ct
con$ig*ration ma+ be #one at t-e 6con$ig*ration ma+ be #one at t-e 6
Distriution Centers (DCDistriution Centers (DCan* 0arehousingan* 0arehousing
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;ig-l+ a*tomate# s+stem t-at r*ns #a+&to&;ig-l+ a*tomate# s+stem t-at r*ns #a+&to&
#a+ operations o$ a 6#a+ operations o$ a 6 ontrols item p*ta3a+, pic
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A WMS
* ** *
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Manufacturers generate orders, notManufacturers generate orders, notdistributors or retailersdistributors or retailers
Stocking information is accessedStocking information is accessed
using EDIusing EDI A first step towards supply chainA first step towards supply chain
collaborationcollaboration
Increased speed, reduced errors,Increased speed, reduced errors,
and improved serviceand improved service
Ven*or)Manage* InventoryVen*or)Manage* Inventory
C ll i L i i *C ll ti L i ti *
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Collaborative planning, forecasting, andCollaborative planning, forecasting, and
replenishment create greater economies ofreplenishment create greater economies of
scalescale
Internet-based exchange of data andInternet-based exchange of data and
informationinformation
Significant decrease in inventory levels andSignificant decrease in inventory levels andmore efficient logisticsmore efficient logistics
Companies focus on core competenciesCompanies focus on core competencies
Collaorative Logistics an*Collaorative Logistics an*Distriution OutsourcingDistriution Outsourcing
i% i
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Rail Low-value, high-density, bulk
products, raw materials, intermodalcontainers
Not as economical for small loads,
slower, less flexible than trucking Trucking
Main mode of freight transport inU.S.
Small loads, point-to-point service,
flexible More reliable, less damage than
rails; more expensive than rails forlong distance
%ransportation%ransportation
i ( % i (
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AirMost expensive and fastest, mode offreight transport
Lightweight, small packages
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WaterLow-cost shipping modePrimary means of internationalshipping
U.S. waterways
Slowest shipping modeIntermodalCombines several modes ofshipping-truck, water and rail
Key component is containers
PipelineTransport oil and products in liquidform
High capital cost, economical useLong life and low operating cost
%ransportation (cont.%ransportation (cont.
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?ring toget-er s-ippers an# carriers?ring toget-er s-ippers an# carriers
8nitial contact, negotiations, a*ctions8nitial contact, negotiations, a*ctions
@amples@amples
333.nte.com333.nte.com
333.$reig-t:*ote.com333.$reig-t:*ote.com
Internet %ransportation $1changesInternet %ransportation $1changes
SCM S fSCM S ft
http://www.nte.com/http://www.nte.com/http://www.freightquote.com/http://www.freightquote.com/http://www.freightquote.com/http://www.nte.com/7/26/2019 Supply Chain Management, in Planning Production and Inventory Control
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Enterprise Resource Planning (ERP)Software that integrates components of
a company by sharing and organizinginformation and data
SAP was first ERP software
MySAP.com
Web enabled modules that allowcollaboration between companies alongthe supply chain
SCM Soft#areSCM Soft#are
i 2i l h i i h
http://www.mysap.com/http://www.mysap.com/7/26/2019 Supply Chain Management, in Planning Production and Inventory Control
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Lin2ing Supply Chain #ith S'PLin2ing Supply Chain #ith S'P
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Key performance indicatorsInventory turnover
cost of annual sales per inventory unit
Inventory days of supplyTotal value of all items being held ininventory
Fill rateFraction of orders filled by a distributioncenter within a specific time period
Measuring Supply Chain PerformanceMeasuring Supply Chain Performance
3 P f I *i3 P f I *i t
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8nventor+ t*rns A8nventor+ t*rns A"verage aggregate val*e o$ inventor+"verage aggregate val*e o$ inventor+
ost o$ goo#s sol#ost o$ goo#s sol#
"verage aggregate val*e o$ inventor+ A"verage aggregate val*e o$ inventor+ A
AA (average inventor+ $or item(average inventor+ $or item ii))B (*nit val*e itemB (*nit val*e item ii))
6a+s o$ s*ppl+ A6a+s o$ s*ppl+ A(osts o$ goo#s sol#)C(D! #a+s)(osts o$ goo#s sol#)C(D! #a+s)
"verage aggregate val*e o$ inventor+"verage aggregate val*e o$ inventor+
3ey Performance In*icators3ey Performance In*icators
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8nventor+ t*rns A8nventor+ t*rns AED,1,000ED,1,000
E2!, 000, 000E2!, 000, 000
6a+s o$ s*ppl+ A6a+s o$ s*ppl+ A(E2!,000,000)C(D!)(E2!,000,000)C(D!)
ED,1,000ED,1,000
A 12.DA 12.D
A 2.A 2.
1. ost o$ goo#s sol# E2! million2. 7ro#*ction materials an# parts E,2,000
D. %or
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Process ControlProcess ControlUsed to monitor and control anyUsed to monitor and control any
process in supply chainprocess in supply chain
Supply Chain OperationsSupply Chain Operations
Reference (SCOR)Reference (SCOR)Establish targets to achieve best inEstablish targets to achieve best inclass performanceclass performance
Other Measures of Supply Chain PerformanceOther Measures of Supply Chain Performance
SCO+ M * l PSCO+ M * l P
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Plan
6evelop a co*rseo$ action t-at bestmeets so*rcing,pro#*ction an##eliver+re:*irements
Source
7roc*re goo#s
an# services tomeet planne#
or act*al
#eman#
Make
5rans$orm
pro#*ct to a
$inis-e# state to
meet planne#
or act*al
#eman#
Deliver
7rovi#e pro#*cts
to meet #eman#,
incl*#ing or#er
management,
transportation
an# #istrib*tion
Return
Ret*rn
pro#*cts,
posteliver+
c*stomer
s*pport
SCO+ Mo*el ProcessesSCO+ Mo*el Processes
4R t F i4R t F i
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Number of days to achieve an unplanned20% change in orders without a costpenalty
Productionflexibility
Number of days for supply chain torespond to an unplanned significantchange in demand without a cost penalty
Supply chainresponse timeSupply ChainFlexibility
Number of days from order receipt tocustomer delivery
Order fulfillmentlead time
Supply ChainResponsiveness
Percentage of orders delivered on time
and in full, perfectly matched with orderwith no errors
Perfect order
fulfillment
Percentage of orders shipped within24hours of order receipt
Fill rate
Percentage of orders delivered on timeand in full to the customer
Deliveryperformance
Supply ChainDeliveryReliability
DefinitionPerformanceMetric
PerformanceAttribute
4R *stomer Facing4R *stomer Facing
4R 8 t l F i4R 8 t l F i
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DefinitionPerformanceMetric
PerformanceAttribute
4R 8nternal Facing4R 8nternal Facing
Revenue divided by total assets including working
capital and fixed assets
Asset turns
Number of days that cash is tied up as inventoryInventory days of
supply
Number of days that cash is tied up as working
capital
Cash-to-cash
cycle time
Supply Chain
Assetanagement
!fficiency
"irect and indirect costs associated with returns
including defective# planned maintenance and
excess inventory
$arranty%returns
processing cost
"irect material cost subtracted from revenue and
divided by the number of employees# similar to
sales per employee
&alue-added
productivity
"irect cost of material and labor to produce a
product or service
Cost of goods
sold
"irect and indirect cost to plan# source and deliver
products and services
Supply chain
management costSupply Chain
Cost
4l l S l Ch i4loal Supply Chain
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5o compete globall+ re:*ires an5o compete globall+ re:*ires ane$$ective s*ppl+ c-aine$$ective s*ppl+ c-ain
8n$ormation tec-nolog+ is an8n$ormation tec-nolog+ is anenabler o$ global tra#eenabler o$ global tra#e
Nations $orm tra#ing gro*psNations $orm tra#ing gro*ps
No tari$$s or #*tiesNo tari$$s or #*ties
4loal Supply Chain4loal Supply Chain
O l 4l l Ch i % iO t l t 4l l Ch i % ti
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Increased documentation for invoices, cargo
insurance, letters of credit, ocean bills oflading or air waybills, and inspections
Ever changing regulations that vary from
country to country that govern the import andexport of goods
Trade groups, tariffs, duties, and landing costs
Limited shipping modes
Differences in communication technology and
availability
Ostacles to 4loal Chain %ransactionsOstacles to 4loal Chain %ransactions
O t l t 4l l Ch i % tiOstacles to 4loal Chain %ransactions
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Different business practices as well as
language barriers
Government codes and reporting requirementsthat vary from country to country
Numerous players, including forwarding agents,custom house brokers, financial institutions,insurance providers, multiple transportationcarriers, and government agencies
Since 9/11, numerous security regulations andrequirements
Ostacles to 4loal Chain %ransactions -Ostacles to 4loal Chain %ransactions -
Duties and TariffsDuties and Tariffs
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Proliferation of trade agreementsProliferation of trade agreementsGroup members charge uniform tariffsGroup members charge uniform tariffs
Member nations have a competitiveMember nations have a competitive
advantage within the groupadvantage within the groupTrade specialists
Include freight forwarders, customs house
brokers, export packers, and exportmanagement and trading companies
Duties and TariffsDuties and Tariffs
Duties an* %ariffs (cont Duties an* %ariffs (cont
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APECAPEC
ASEANASEAN
ANZCERTAANZCERTA
FTAAFTAA
NAFTANAFTA
CALMCALM
ATPAATPA
MERCOSURMERCOSUR
TAFTATAFTA
Duties an* %ariffs (cont.Duties an* %ariffs (cont.
Lan*e* CostLan*e* Cost
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Total cost of producing, storing, and transportingTotal cost of producing, storing, and transporting
a product to the site of consumption or anothera product to the site of consumption or another
portport
Value added tax (VAT)Value added tax (VAT)
An indirect tax assessed on the increase in value of aAn indirect tax assessed on the increase in value of a
good at any stage of production process from rawgood at any stage of production process from raw
material to final productmaterial to final product
Clicker shockClicker shock
Occurs when an ordered is placed with a company thatOccurs when an ordered is placed with a company that
does not have the capability to calculate landed cost.does not have the capability to calculate landed cost.
Lan*e* CostLan*e* Cost
0 * I i l % * L i i S0 * I t ti l % * L i ti S t
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International trade logistics web-based softwareInternational trade logistics web-based softwaresystems reduce obstacles to global tradesystems reduce obstacles to global trade Convert language and currencyConvert language and currency
Provide information on tariffs, duties, and customsProvide information on tariffs, duties, and customs
processesprocesses
Attach appropriate weights, measurements, and unitAttach appropriate weights, measurements, and unit
prices to individual products ordered over the Webprices to individual products ordered over the Web
Incorporate transportation costs and conversion ratesIncorporate transportation costs and conversion rates Calculate shipping costs online while a company entersCalculate shipping costs online while a company enters
an orderan order
Track global shipments/Track global shipments/
0e)ase* International %ra*e Logistic Systems0e)ase* International %ra*e Logistic Systems
+ecent %ren*s in 4loali5ation+ecent %ren*s in 4loali5ation
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Two significant changesTwo significant changes Passage of NAFTAPassage of NAFTA
Admission of China in WTOAdmission of China in WTO
Electronic IndustryElectronic Industry 70% of cost is in components70% of cost is in components
Major supply chains have moved toMajor supply chains have moved toChinaChina
Proliferation of counterfeit partsProliferation of counterfeit parts
+ecent %ren*s in 4loali5ation+ecent %ren*s in 4loali5ationfor !.S. Companiesfor !.S. Companies
$ffects of 6/77 on 4loal Chains$ffects of 6/77 on 4loal Chains
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Increase security measuresIncrease security measures Added time to supply chain schedulesAdded time to supply chain schedules
Increased supply chain costsIncreased supply chain costs
24 hours rules for risk screening24 hours rules for risk screening
Extended documentationExtended documentation Extend time by 3-4 daysExtend time by 3-4 days
Inventory levels have increased 5%Inventory levels have increased 5%
Other costs include:Other costs include: New people, technologies, equipment, surveillance,New people, technologies, equipment, surveillance,
communication, and security systems, and trainingcommunication, and security systems, and training
necessary for screening at airports and seaportsnecessary for screening at airports and seaports
aroundtheworld
$ffects of 6/77 on 4loal Chains$ffects of 6/77 on 4loal Chains