Scm 406 final

barriers to worldwide sourcing

- Lack of skills (biggest challenge) - Company's Resistance to change - Longer lead times (ship products around the world) - Customs, language, and culture (culture different) - Currency fluctuations (constantly have to check if the dollar is stronger or weaker) - Increased supply risk (some countries are proned to disasters, corruptions, relaxed environmental regulations

Globalization

-95% of world's population lives outside the US -80% of world's GDP is produced beyond americas borders -India's middle class is now larger than americas From a buyer's perspective: procurement -access to goods and services worldwide -cost benefits in terms of materials, labor, etc. From a seller's perspective: salesperson -global brands is the present -the creation of market segments that cross geographic and cultural boundaries --> increased competition -the market for China and India are huge

CSR in supply chain

-CSR is no longer the individual company's domain; increasingly it encompasses the entire supply chain -Global competition places a particular pressure on MNCs to examine not only their own labor practices, but those of their entire supply chain -MNCs are increasingly working with their suppliers to comply with social and environmental standards

Apple-Foxconn ex;

-Foxconn's suicides are a reminder of the human cost that can come with the low-cost manufacturing U.S. tech companies demand Facts: -unsafe working conditions -overtime exceeds chinese laws -no green product

Collaboration

-International & local authorities: the United Nations (UN), the International Labor Organization (ILO), etc. -NGOs: Institute of Public and Environmental Affairs (IPE), the Fair Labor Association (FLA), Unicef, etc. Ex: Volkswagon: partnerships with ILO and German corporation for technical cooperation (GTZ) in 2004 -employed teams of consultants, factory inspectors, and planners to address health and safety issues in its s.c. this project covers suppliers in Mexico, South Africa, and Brazil -companies use ILO to develop their policies and standards since each country is different -some companies share suppliers so its better it they share ideas & standards

Criticism and Concern

-corporations are only responsible to their shareholders and not to society as a whole -some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation. However, these programs distract the public from ethical questions posed by companies' core operations -companies claim to promote CSR and be committed to sustainability development but simultaneously engage in harmful business practices -better govt. and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner

more costs of global sourcing

-currency exchange rats are extremely important to consider with global sourcing because foreign purchases may cost more or less depending on fluctuations in currency markets -because fluctuation in currency markets is extremely difficult to predict, it is important to evaluate the performance of the dollar over the length of contract -if it is weak the final cost of goods tend to be relatively more than originally agreed upon -if is is strong, a firm can realize savings through the exchange rates -if dollar is stronger, we are buying at better deal -if weaker, spending more --> might have to postpone decisions -put everything in a contract

Drivers of sustainability

-customers prefer sustainable products/services -regulation/law & political pressures -resource scarcity -competitors increasing commitment to sustainability -stricter requirements from partners along the value chain

top risks for CPOs

-economic downturn and inflation

Environment: A pillar of sustainability

-impact of business on the quality and quantity of natural resources -improved pollution and emissions management -minimize waste, water, emissions, pollution, etc -reduction in energy consumption -investment in clean technologies -recycling

China sustainability suppliers

-instead of punishing their supplier for violations, incentivize them for sharing info so you can help them -chinese suppliers/companies need sustainability experts -you need to look up how many violations suppliers have before business -chinese govt making progress by ; 1. making more rules & regulations 2. enforcing/cracking down

Code of Conduct

-it is a document stating a number of social and environmental standards that a firm's suppliers are expected to fulfill (introduced in contracts) -how to make it effective; there is a gap between the ethical standards expressed in the code of conduct and the actual conditions at the suppliers -set expectations for suppliers downside- they lack to enforce it and struggle to monitor suppliers

global sourcing

-it is a practice of sourcing from the global market for goods and services worldwide -many organizations strategically deploy global sourcing to remain competitive and survive in today's competitive markets -Procurement implications: -to search, evaluate and work with suppliers around the world -to develop efficient operations and maintain controlled risks with these suppliers (different countries could have different risks) -to keep costs down!

Corporate Social Responsibility

-it is the idea that organizations have an obligation to society that extend beyond compliance with regulation/laws -CSR means than a company's business model should be socially responsible and environmentally sustainable (a company's activities should be benefitting the society) (a company's activities should not harm the environment) -its goal is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, etc

CEO of Pepsico video -being a responsible company

-need to do things for the long-term -it needs woven into the business and started from top-down -all about culture in the business

What drives companies to move from domestic to international purchasing?

-no domestic suppliers exist -competitors are gaining an advantage -supply disruption -rapidly changing currency exchange rates -declining domestic supply base -inflation within the. home market or emergence of new supply source

Sustainable procurement

-some suppliers don't have the expertise so you have to reach out to researchers or find other suppliers that have expertise -procurement needs to collect data on different things like green house gas emissions 3a. The developing of "green" products & packaging -Kimberly Clark sales from green innovative products -starbucks improving life cycle value of disposable cups -dell developing new compostable packaging materials made from bamboos and mushrooms -walmart going to provide carbon footprint information in products label 3b. The development of green inter-firm processes -come up with green products/processes with suppliers reusable pallets and containers (Hershey)w -recycling programs (philips)

Training

-to organize courses and workshops in health and safety, social responsibility, environmental management -to promote cross-functional teams with your professionals and those of your suppliers -to foster supplier visits -buyers need to provide the training and experts if they want to see a difference -buyers need to provide feedback ex: Starbucks support centers -established farmer support centers in Costa Rico (2004) and Rwanda (2009) to provide local farmers with resources and expertise to help lower cost of production, reduce fungus, infections, improve coffee quality

Social Concerns in the supply base

-use of child labor -dangerous working conditions -excessive working hrs and poor wages -union rights -race and gender discrimination -supplier diversity

US trade with China

-we are more dependent on China than they are on the U.S. -How do we reduce the Gap? -provide incentives to open more plants -use closer suppliers (Mexico & Canada) -shorter lead time -would be more expensive though we don't have technical skills since so many people getting degrees -sometimes certain countries are better to deal with for certain products

Risks of Global sourcing

1. Communication and cultural barriers -important information can get lost or altered in translation -companies may not understand business norms across countries -bribery 2. Pipeline inventory issues -delays? -disruptions? 3. Quality issues -companies may have to increase their quality control processes and supplier audits, which consume more financial resources 4. Distance -the distance between firms is significant in terms of time zones and physical location. Internet capabilities provide a partial solution, but face-to-face contact is preferred for some sensitive issues 5. Staffing -firms must either hire experts or develop specialists who have experience in global purchasing management, quality control, international business law, and accounting

Getting to know your supply chain 1.

1. Provide incentives for identifying, disclosing and addressing problems -chinese suppliers often don't see the need to disclose an environmental problem -effectvieness of audits (not improve supplier performance and bribery) -to promote Chinese supplier to look for and disclose deficiencies themselves 2. Collaborate with non-government group (NGO) to facilitate monitoring and help suppliers self-identify problems -a shift from adversarial to collaborative relationships -evaluation and monitoring of second-tier suppliers what is going on with suppliers, then how do you react to it and deal/fix it

Sustainable Procurement

1. supplier selection and evaluation 2. sustainable scorecard 3. the development of "green" products/inter-firm processes 4. the setting of sustainability goals 5. sustainability supplier awards 6. contracting and tendering

Act on knowledge from improved China Efficiency

1. to encourage training of more Chinese environmental professionals 2. to put skin in the game (nike) 3. To learn from your suppliers and facilitate learning among suppliers 4. to collaborate with other buyers to drive change in your common suppliers 5. to find like-minded buyers with whom to build collaborative auditing and remediation processes at shared factories 6. to reach lower-tier suppliers 7. to tailor programs to local realities

CDP

2008 Climate Change Project -created a global data platform with all suppliers with questions about what they do regarding climate change -all big companies use this as a platform

Getting to know your supply chain 2.

3. Make use of improving chinese government data to augment internal supply chain transparency afforts -chinese government's effort to measure more accurately environmental problems and progress -if reliability of data increase, buyers would use that as s second information about partners and potential partners 4. Work with multibrand forums to standardize Chinese supplier audit data at first-tier and lower-tier suppliers -multibrand forums to create standardized social and environmental audit protocols -fair labor association (FLA) is creating a standardized audit for EHS and labor compliance and a database with relevant info 5. Encourage environmental transparency as an efficiency tool all businesses need to standardize practices so all businesses need the the same results so suppliers fix problems

What are the differences between level 4 and 5?

5 is the highest global sourcing level (integration across functional groups ) -occur during development of new products -work to standardize their supply management process and practices worldwide -very important for companies to standardize processes -5 is no more a procurement effort, its R&D, sales, marketing, etc 4 strategies are integrated across only ww locations

How to implement CSR into SCM

Be Proactive! -map your supply network (see where your sc is) -identify where problems/opportunities might be -evaluate alternatives: what is social, environmental, and economic impact of each alternative? -use companies tools and policies (collaboration, training, code of conduct) -continually measure performance of any initiatives 1st tier suppliers won't give up their "recipes" unless you have a good relationship with them

Companies doing well by doing good

CAFE program -workers pay has to meet or exceed minimum wage -adequate health, safety and living conditions for workers -prohibitions on child labor -limits on agriculture chemicals -farmers are re-auditied every year -they pay a higher premium price -they do this because they care a/b the long run the farmers will have better quality

Characteristics of sustainability leaders

CEO commitment to sustainability (comes from top exec. (corporate strategy)) A separate function of sustainability -chief sustainability officer -director of the enterprise sustainability strategy team (Kimberly Clark) -vice-president of sustainable business and innovation (nike) -Vice President of CSR, sustainability, and community affairs (Campbell soup) A separate sustainability reporting process -operational KPI's tied to sustainability such as: energy & water use, waster generation, sales of environmentally innovative products, etc. -executive pay is tied to performance of financial and non-financial measures -a link between sustainability and financial incentives -global reporting initiative (GRI) Long term goals -leading companies disclose their info and share it -GRI main goal: standardize what info companies have to disclose

Costs of global sourcing

Common to both global & domestic sourcing: -direct labor materials go down -lead time, transportation, inventory goes up Higher in global sourcing -administrative costs (identification, qualification, travel, brokers fees) (going to have to visit supplier so these costs are higher for global) Exclusively global sourcing costs: Foreign costs -duty charges, custom fees, import fees, currency exchange, gov regulations

Why is CSR important?

Potential benefits: -reputation enhancement (Starbucks higher prices) -creation of trust among customers -recruiting high quality employees -charging a premium price

Why is sustainability important?

Enhanced company image and goodwill (reputation by being environmental & socially responsible) -gain legitimacy -build strong sustainability brand reputation Competitive advantage -increased profit, grow and market share -a source of innovation Customer loyalty Employee engagement -higher employee retention and satisfaction -lower costs of recruiting, retention and training (in order to attract good talent they have to practice sustainability)

Who are the leaders in sustainability?

Europe North America Australia/New Zealand Asia-Pacific South America Middle East Africa

What are the characteristics of outstanding global sourcing?

Executive commitment to global sourcing -(more integration, not just procurement decision, its top executives) Rigorous and well-defined processes -(we have to have processes in place so every office in every country buys products the same) Availability of needed resources -(most critical resource is time) Integration through information technology -(use all the same tech. to keep constant & exchange info Supportive organizational design Structured approaches to communication Methodologies for measuring savings -(they have to show savings for doing business out of the country)

Five levels of sourcing

Level 1: no international sourcing Level 2: IP only as needed Level 3: IP as part of sourcing strategy Level 4: GS strategies integrated across ww locations Level 5: GS strategies integrated across ww locations & functional groups

Nike Ex

Facts: Vietnam: violation of minimum wages and overtime laws (1996) Cambodia and Pakistan: child labor(1990s) Malaysia: squalid living conditions and forced labor (1998) Approaches: 2005: its president publicly apologizes and announced several long-term measures to improve working conditions at nike supplier factories 2009: x% suppliers audited nike video: -keep people in "prison camps" -horrible working & living conditions -get paid barely anything

What are the major differences between intonational purchasing and global sourcing?

IP - commercial transaction between buyer & supplier in different countries GS - integrating & sourcing common items, materials, processes, designs, and suppliers across worldwide buying, design, and operating locations

U.S. 15 biggest trading partners 2018

Mexico, Canada, China,

Worldwide trade war 2019

NAFTA agreement -theres trade wars everywhere -consumers are going to pay more for this -the trade war goal should be reducing the deficit gap -china is the largest manufacturer in the world so they have all the power

global sourcing considerations

Qualitative elements associated with GS: -impact of national interests (unemployment, GDP) -ethical consequences of "sweat shop" labor -hazardous working conditions in foreign countries should be evaluated Olympic pride Olympic Uniforms Quantitative elements associated with global sourcing: -exchange rates uncertainties -direct costs of importing goods (transportation & transaction costs) -indirect costs of importing goods (utilization of fixed assets, pipeline inventories, managerial time, engineering support) they try to quantify what they will save going with outsourcing countries Global sourcing is much more complex from both a quantitative and qualitative viewpoint than domestic sourcing

1. supplier selection and evaluation

Tata group: ISO 14000 certification Walmart: suppliers are evaluated on energy and climate, material efficiency, nature and resources, and community IKEA: potential suppliers should commit to not using child labor in their operations

International Trade Gap

U.S - more imports than exports (big gap) European Union - (ideal) you buy the same amounts of products you sell to countries China - exports more than imports (you want to sell more)

6. contracts

contracts can be used to push suppliers to comply to the sustainability practices -code of conducts

benefits of global sourcing

cost/price - labor costs lower material quality access to technology availability competition to domestic sources - increase comp. domestically -what the difference would be from buying overseas

Three pillars of sustainability

environment, economy, society

5. sustainability supplier award

how do we incentivize suppliers to be sustainable? -use awards and make it a compeition

U.S. - China trade war

if you implement tariffs you have to expect the country to fight back with their own -countries fight this by using neighboring countries instead

Ex: My green pizza

local pizza restaurant with four outlets -higher price for product -key processes: product design, operations and supply management product design: "ingredient philosophy" which stipulates that the ingredients in their products much be both all-natural and genuine purchasing: buying locally grown produce creates supply variability. the company pays significantly above market prices for produce to guarantee both quality and supply operations: the company tries to reduce energy in pizza delivery, packaging and restaurant operations even small companies can do it if its in their strategy

Improving work conditions in a global supply chain NIke

main takeaway: you have to look closer into the factories other than the numbers and audits on paper -audits are just a picture in time of how the company is running at that moment

What is sustainability?

meeting the needs of the present without compromising the ability of future generations to meet their own needs Adam Werbach video: environment, culture, social, economic -PSP personal sustainability projects -can you use sustainability to help core biz projects -10 cycle (transparency, engagement, networking)

ECOVADIS

service provider for economy questions that help buyers with information about their suppliers -suppliers have to prove they meet those questions & specs The problem: What do companies do with the information they collect from auditing suppliers they have to act

4. the setting of sustainability goals

suppliers figure out risks -then they set long term goals -ask suppliers to share info publicly -they also have to share the progress along the way