[MODULE 4] Globalization of the Supply Chain

After reviewing the video clip; Post a brief opinion to the questions below:

1. Does outsourcing supply chain management functions when firms expand globally make sense?

From my point of view, I understand when firms consider expanding globally outside their countries ; they have to look for 3^rd party player who can support/help out several operation procedures such as sourcing local supplies, resolving customs issues, delivering materials from other countries  to the countries for production or sub-assembly. 

As stated in the page 168 of the textbook, companies will look at the extra cost and benefits to add their moving materials from one country to another country. If the extra cost is relatively small compared with the total cost of production in home country, companies will begin outsourcing for their certain part of functions even if they have enough resources and capacity, skills to handle that. Every company always think about their flexibilities when they’re in trouble, it means whey they need to cut their operation cost, outsourcing operation can be easier to adjust or reduce the size of operation.

However, regarding security side and overall cost including unforeseen money and quality matters that can be happen from their outsourcing partners, outsourcing may not be the right answer to expand globally for the firms all the time. This is the reason why some manufacturing plant or customer service functions which are operated by 3^rd party of big firms have been returning to their countries.

1. If your company does business globally or has suppliers sourced in low cost countries, have they outsourced supply chain management activities?

One of my previous employers is still outsourcing huge amount of value and volume for raw materials or half-finished goods from 3^rd party in the country or outside countries before finishing the production process in terms of its cost factor.

And also every year there is a bidding process (RFQ) to select the single transportation provider(=freight forwarder) of international freight from countries to countries with single rate in order to get the most effective rate/quote. I think this trend will not shrink or stop in the near future because, most of all, the company see the number first that may able to increase their profit rather than quality side.

Of course this is not means that company is ignoring the quality of product but, anyway, their first sight goes to the amount of black ink through outsourcing.

 

Review and comment on at least 2 other postings in this discussion.

Module 4 – Video Transcripts

The Global Trade Management Video.

Well I want to thank you gentlemen for joining me in this conversation; we have a little opportunity to discuss some of the ramifications (=progress) of what is going on in the whole area of global trade management and international trade logistics. We have certainly had a lot of interest I think from many of our prospects and customers; it is a topic that seems to be on everybody’s mind. But it is also a little bit of confusion. I thought I would start with you Adrian, maybe you can help us understand a little bit the difference here between what are we meaning here between Global Trade Management and International trade logistics. What is the distinction?

Yes, I think international trade logistics has been a term that has been around for a long time, historically this has referred to trade compliance and export compliance particularly on the software side so a lot of the ITL solutions back in the 90’s were really focused on export and compliance. When you look today Global Trade management is a much broader topic that not only encompasses the compliance piece but also the transportation piece and the area getting a lot of attention is the financial supply chain, not only the physical move of the goods but the financial, the movement of money and how that impacts some of the decisions companies make as they are looking at their supply chains and their operations around global trade.

So the much broader than just the logistics piece of it, it is really extending into the whole organization being involved in the financial piece, legal ramifications and all that.

Right, yes, it was purely ITL was focused on just the trade compliance within companies. Today Global Trade management to your point really extends across procurement, logistics, trade compliance, sourcing, and risk management. It is a platform that multiple groups in the company focus on and contribute to.

You might add to that in the last five years, the whole security issue and the regulations around that require good information and good data

Does that mean there are consequences to companies around that whole security thing, is it just because big brother is watching that companies are coming? Why is it important?

 

That is an interesting questions, the whole security issue revolves around balancing the security and the needs of commerce. We want the right amount of security to ensure the nation is safe but make sure that commerce moves as well. The government has decided it wants a multi tier approach to that, the information part is a critical component to the whole security regime.

What are some of other aspects, companies that we know, we have seen it is not just the big guy; it is not only the big shippers engaging and wanting to learn more about how they can effectively move their goods. We have had mid tier companies looking at outsourcing opportunities to bring goods in from more effective sources as well as open market places and we are seeing this movement. So what are some of the things that companies are entering into this space for the first time really need to be thinking about.

Well I think that really when you look at global trade management, we always take about technology, but it is not always about technology, it is people, process and technology. It is even more true in global trade arena. Technology can certainly help you automate the process and help you with compliance and be able to communicate with the different trading partners but you need to have what I call the human IP, the human expertise to compliment the technology side, because the global trade environment is so complex and so dynamic it is constantly changing in terms of different regulations not only here in the U.S. but in Europe, in Asia, customs modernization programs going on around the world etc. etc. So there is a human element to it that companies must be mindful of.

That is an interesting aspect to all this, the human intellectual processes and knowledge to navigate these waters. The companies who are trying to enter in this area should they be investing in their own internal IP or should they be looking for other consulting or should they be looking for collaborative partners or freight forwarders or others who can help manage or help to navigate these waters?

I think that a big part of a new company getting in is will be how complex will their supply chain be when they go overseas, because if it’s one product or a similar group of products all being sourced from the same place, that is not very complex and perhaps they can handle that on their own. But if they start sourcing from multiple countries and the number of SKU’s explodes, then it becomes a very complex process and most companies have outsourced that to third parties.

 

Is there a threshold or a set of criteria where I can look at my supply chain to understand that it is currently today or will be in the future at that level where I can understand the level of complexity that is driving a decision one way or another.

Well I think that a lot of it has to do with how much you are willing to adapt in the future. You can make a single source decision today in China and that may be a bad decision 3 years from now and if you have built your entire system around trading with one country and all the import export issues with that, then you switch to another country or bring it back, things fall apart and you almost have to start over from scratch so it’s how complex do you think you might become and how much flexibility do you want to have in the future, the more flexibility you want I would recommend looking to experts to help with that because it is a complex and ever evolving practice.

I think it really depends on how complex and dynamic your supply chain is, so if you are in an environment where you are working with the same set of suppliers all the time and you have a stable and finite product portfolio then that is something that you can probably manage more effectively internally or at least put the infrastructure around that and plan for that. But if you are in an environment where you are continually working with new suppliers every year and you are sourcing from new countries every year and you are introducing hundreds of new products each year that you have to classify and determine their product codes and exportability and things of that nature, then it could get pretty complex pretty quickly. I think every company at some point do we want to invest internally in the people and the technology and the other infrastructure required to keep doing this in house or do we want to look at outside experts who can help us scale our business.