L9: GLOBAL SUPPLY CHAIN
The Impact of Globalization on Supply Chain Networks
The Offshoring Decision: Total Cost
Risk Management in Global Supply Chains
The Basic Aspects of Evaluating Global Supply Chain Design
Evaluating Network Design Decisions Using Decision Trees
building flexibility into supply chain operations allows the supply chain to deal with uncertainty in a manner that will maximize profits.
demand
prices
exchange rates
the competitive market
Offshoring to low-cost countries
High labor content
Large production volumes
Relatively low variety
Low transportation costs
Disruptions
Delays
Systems risk
Forecast risk
Intellectual property risk
Procurement risk
Inventory risk
TAILORING THE RISK MITIGATION STRATEGIES
Increase capacity
Get redundant/ multiple suppliers
Increase responsiveness
Increase inventory
Increase flexibility
Pool/ combine or aggregate demand
Increase source capabilit
DISCOUNTED CASH FLOW ANALYSIS
evaluates the present value of any stream of future cash flows and allows managers to compare different cash flow streams in terms of their financial value
The highest NPV provide greatest financial return
Calculation
NPV
A decision tree is a graphic device that can be used to evaluate decisions under uncertainty
A manager must make many different decisions when designing a supply chain network
Many of them involve a choice between a long-term (or less flexible) option and a short-term (or more flexible) option
If uncertainty is ignored, the long-term option will almost always be selected because it is typically cheaper
Such a decision can eventually hurt the firm, however, because actual future prices or demand may be different from what was forecasted at the time of the decision
Identify the duration of each period (month, quarter, etc.) and the number of periods, T over the which the decision is to be evaluated.
Identify factors such as demand, price, and exchange rate, whose fluctuation will be considered over the next T-periods.
Identify representations of uncertainty for each factor; that is, determine what distribution to use to model the uncertainty.
Identify the periodic discount rate, k for each period.
Represent the decision tree with defined states in each period, as well as the transition probabilities between states in successive periods.
Starting at period, T work back to period 0, identifying the optimal decision and the expected cash flows at each step. Expected cash flows at each state in a given period should be discounted back when included in the previous period
MAKING GLOBAL SUPPLY CHAIN DESIGN DECISIONS UNDER UNCERTAINTY IN PRACTICE
Use multiple metrics to evaluate global supply chain networks
Use financial analysis as an input to decision making, not as the decision-making process
Use estimates along with sensitivity analysis
Combine strategic planning and financial planning during global network design