MODULE-II- Global Sourcing Strategy
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Transcript of MODULE-II- Global Sourcing Strategy
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8/7/2019 MODULE-II- Global Sourcing Strategy
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MODULE-I
Global Sourcing Strategy
Key Points:
International Product Cycle Theory
Trends in Global Sourcing Strategy
Potential Pitfalls in Global Sourcing
The Value Chain
Functional Interfaces
Logistics of Sourcing StrategyLong-term Consequences
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International Product Cycle Theory
Global competition suggests a drastically
shortened life cycle for most products, and no
longer permits companies a polycentric,
country-by-country approach to international
business.
A frequently used framework to describe
cross-national business practices is the
international product cycle theory.
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International Product Cycle Theory
According to the theory, changes in inputs
and product characteristics toward
standardization over time determine an
optimal production location at any particular
phase of the products life cycle.
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International Product Cycle Theory
(cont.) However, three major limitations of the
international product cycle theory have to beborne in mind:
1.Increased pace of new product introductionand reduction in innovational lead time, whichdeprive companies of the age-old polycentricapproach to global markets
Innovations can make the global market perspectivewrong
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International Product Cycle Theory
(cont.) However, three major limitations of the
international product cycle theory have to beborne in mind:
2.Predictable sourcing development during theproduct cycle, which permits a shrewdcompany to outmaneuver competition
Stable inputs may allow for cost savings
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International Product Cycle Theory
(cont.) However, three major limitations of the
international product cycle theory have to beborne in mind:
3.More active management of locational andcorporate resources on a global basis, whichgives a company a preemptive first-moveradvantage over competition.
Assumes management matters
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International Product Cycle Theory
(cont.) Emphasis on logistical management of the
interfaces of R&D, manufacturing, and marketingactivities on a global basis global sourcing
strategy
Balance between drive for cost savings(standardization) and customization needed
The reality of global business is that the productlife-cycle is not as predictable and stable as itonce was
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Trends in Global Sourcing Strategy
Trend 1: The Decline of the Exchange RateDeterminism of Sourcing
Foreign sourcing occurs for non-cost reasons i.e.
access to technology Difficulty of dropping overseas suppliers
Domestic suppliers may increase prices when they know
their customers dont have a choice
Long-term relationships tend to survive exchange ratefluctuations
Portfolio perspective of foreign operations
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Trends in Global Sourcing Strategy
Trend 2: New Competitive Environment Caused byExcess Worldwide Capacity
Price, quantity and delivery now not so uncommon or
important as are quality and uniqueness which lead tohigher price expectations weakening FX concerns
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Trends in Global Sourcing Strategy
Trend 3: Innovations in and Restructuring ofInternational Trade Infrastructure
More experienced purchasing managers
Improvements in transportation and communication
Finance availability and options
Global diffusion of manufacturing
Neighbouring country sourcing opportunities
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Trends in Global Sourcing Strategy
Trend 4: Enhanced Role of Purchasing Managers
Purchasing now considered strategic more of a role
and resources to do their job better will still get lowest
cost/highest quality regardless of FX fluctuations
JIT production so ingrained into production processes
that stores of inventory no longer held requires
constant influx of raw materials to keep business
operating
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Trends in Global Sourcing Strategy
Trend 5: Trend toward Global Manufacturing
Globally dispersed facilities mean firms have no choice
but to continue with global sourcing regardless of FX
fluctuations
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Potential Pitfalls in Global Sourcing
Conflict between unification and
fragmentation - a close-knit operational
strategy with similar foreign units versus a
loosely related, highly variegated family of
activities.
Diverse activities are still inhibitors rather
than facilitators of cost savings
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Potential Pitfalls in Global Sourcing
Dilemma revisited in such terms as:
standardization versus adaptation (1960s)
globalization versus localization
(1970s)
global integration versus local responsiveness
(1980s)
scale versus sensitivity (1990s)
However, ability and willingness of companies tointegrate have changed due to competitive
urgency.
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The Value Chain
The collection of activities that are performed by
a company to design, manufacture, market,
deliver, and support its product is called the
value chain.
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The Value Chain
The value chain can be divided into two major
activities performed by a company:
(1) primary activities consisting of inbound logistics(procurement of raw materials and components),
manufacturing operations, outbound logistics
(distribution), sales, and after-sale service, and
(2) support activities consisting of human resourcemanagement, technology development, and other
activities that help promote primary activities.
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The Value Chain (cont.)
Five continuous and interactive steps areinvolved in developing such a global sourcingstrategy along the value chain.
1. Identify the separable links (R&D, manufacturing,and marketing) in the companys value chain
2. In the context of those links, determine the
location of the companys competitiveadvantages, considering both economies of scale
and scope
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The Value Chain (cont.)
3. Ascertain the level of transaction costs betweenlinks in the value chain, both internal and external,and selecting the lowest cost mode
4. Determine the comparative advantages of countries(including the companys home country) relative toeach link in the value chain and to the relevanttransaction costs
5. Develop adequate flexibility in corporate decision
making and organizational design so as to permitthe company to respond to changes in both itscompetitive advantages and the comparativeadvantages of countries.
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Functional Interfaces
Management of the interfaces, or linkages,among these value-adding activities is acrucial determinant of a companys
competitive advantage.
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Functional Interfaces
Global sourcing strategy encompassesmanagement of
The interfaces among R&D, manufacturing, and
marketing on a global basis and Logistics identifying which production units will
serve which particular markets and howcomponents will be supplied for production.
R&D/Manufacturing Interface Manufacturing/Marketing Interface
Marketing/R&D Interface
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Logistics of Sourcing Strategy
Sourcing is used to describe themanagement by multinational companies ofthe flow of components and finished products
in serving foreign markets. Intrafirm Sourcing.
Multinational companies procure theircomponents in-house within their corporate
system around the world. Domestic in-house sourcing.
Offshore subsidiary sourcing.
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Logistics of Sourcing Strategy
Outsourcing.
Component procurement from overseas(offshore subsidiary sourcing and offshore
outsourcing) has been a serious social andeconomic issue as it affects domesticemployment and economic structure.
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Long-term Consequences
Two opposing views of the consequences of
offshore outsourcing:
Strategic Alliances
Maximizes specialized competences
Dependence
Creates uncertain environment for independent
suppliers, increasing production and materialcosts.