International Supply Chain Management

Increasingly, organizations are taking advantage of modern communications and transportation technologies in order to increase their competitive edge by producing and selling goods in the global marketplace. To facilitate these activities, organizations utilize supply chain management to efficiently connect the parties involved in a value chain to minimize costs, enhance customer service capabilities, augment the organization’s knowledge base, maximize efficiency, and develop barriers to competitors. Although supply chain management is a complicated process, it is made more so by the compounding factor of dealing with manufacturers, suppliers, and customers in other countries with different cultures, regulations, and tax and legal systems. International supply chain management can help in this process by managing the creation and dissemination of goods and services through specific, coherent connections between processes, structures, and objectives of the members of the supply chain.

Keywords Globalization; Integrated Supply Chain; International Supply Chain Management; Just-in-Time Manufacturing (JIT); Knowledge-Based Theory; Supply Chain; Supply Chain Management; Value Chain

Operations & Information Systems > International Supply Chain Management

Overview

The 21st century has brought with it many advances in the ways that we do things. New technologies have transformed the way that we communicate and have relieved us of many repetitive tasks. One of the results of this trajectory is that for practical purposes, our planet has become smaller. It no longer requires great thought — or great money — to pick up the phone and call halfway around the world. In fact, we do not even have to pick up the phone. We can simply log on to a business's web site and send an e-mail or log on to an Internet phone service provider to speak with friends, family, or business associates anywhere on the planet for little or no cost. The same technologies that make our personal world smaller have made our business world smaller, too. Increasingly, businesses are going international, part of a movement toward globalization. Globalization is the process of businesses or technologies spreading across the world. This allows organizations to have offshore operations that are in countries where production or personnel costs are lower than in the home country. Sometimes these operations are outsourced to foreign countries for the same reason.

Advantages of Globalization

Globalization offers many advantages to businesses. Chief among these are lower personnel and production costs and the ability to have multiple operations in multiple time zones in order to enable around the clock production and increase competitive edge in the marketplace. However, globalization is not without its disadvantages. The organization needs to understand the culture, laws, and regulations of the other country in order to be able to do business effectively. This task is complicated enough as far as production is concerned. However, when the finished product or component needs to be delivered internationally, transportation becomes more cumbersome. Just as employment laws differ from country to country, laws and regulations for international shipping differ from those for national shipping. In addition, a rush order from the other side of the globe is typically more difficult — and expensive — to achieve than a rush order from the other side of the city.

Supply Chain Management

Consideration of these aspects of business logistics are part of supply chain management. A supply chain is a network of organizations involved in the production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the chain provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network. Supply chain management is the process of managing the flow of these things within and between the organizations in the chain. All the parties in the network are linked together into a system. The functioning of each of these affects the functioning of the others.

The purpose of supply chain management is to efficiently connect the parties in a value chain in order to minimize costs, enhance customer service capabilities, augment the organization’s knowledge base, maximize efficiency, and develop barriers to competitors. This process is challenging enough at a regional or national level and encompasses not only manufacturing, but warehousing and delivery of materials, components, and other supplies that are necessary to bring the product to market. Supply chain management not only encompasses such tangible assets, but also the information systems and financial systems that allow the product to be developed, produced, and sold. One of the goals of supply chain management is to develop an integrated supply chain: one in which the component organizations are coordinated and integrated into an efficient system with the dual purposes of meeting customer demands and improving the competitiveness of the supply chain as a whole. This is particularly important in international business operations. However, when this process becomes global in order to support the process in an international market or operation, the complexity of the task increases exponentially.

International Supply Chain Management

Because of the increasing globalization of many businesses and industries, international supply chain management is becoming increasingly important. Even those businesses that do not operate within the global marketplace are likely to have suppliers, customers, or competitors that do. This means that the international aspects of supply chain management must often be considered even when one is not in the global marketplace oneself.

International supply chain management can be defined as the global management of the creation and dissemination of goods and services through specific, coherent connections between processes, structures, and objectives of the members of the supply chain. Although in some ways international supply chain management is the same as domestic supply chain management, it also differs in two important ways. First, in international supply chain management, the competitive arena is larger. This is true not only geographically with the supply chain spread across nations or the globe, but also competitively with the organization experiencing an increase in the number of potential customers, suppliers, and competitors. In addition, international supply management is more complex than the domestic version. When dealing with international commerce, one must take into account multiple regulatory authorities, legal systems, tax structures, and cultures.

Components to International Supply Chain Management

The literature suggests that there are three components to international supply chain management: operations, design, and strategy. The operational component includes the operational structures of the business and any planned activities of the organization's functioning. In other words, the operational aspect comprises the daily operations of the organization including inventory management, production, planning, scheduling, and manufacturing methods. The design aspect of international supply chain management is concerned with the creation of a supply chain that balances and optimizes the organization's objectives with the reality of its operations. Design of the international supply chain includes consideration of the processes of the organization in the furtherance of its goals. The strategic aspect of international supply chain management includes the planning done by the organization to develop its objectives and places boundaries on the processes. Together, these three aspects provide a framework for understanding international supply chain management.

Essential Aspects of International Supply Chain Management

International supply chain management is an emerging field, and many conflicting theories abound. A recent examination of the theories proffered in the literature about international supply chain management led to the conclusion that there are three essential aspects of international supply chain management: knowledge, power, and governance. Knowledge-based theory posits that knowledge is the organization’s most important resource and that the organization’s “strength is based on its ability to create, store, and apply knowledge” (Connolly, 2005, p.155). This theory is directly applicable to international supply chain management. It is knowledge that holds the international supply chain together and enables it to work.

A second important aspect in theories of international supply chain management is power. Power within the international supply chain can shift, however, particularly between the customer and the producer. For example, the customer's demands for a product or service affect its pricing in the marketplace. However, once an order for the product or service is placed, the power shifts: The producer has the power because it has something that the customer wants. However, if the producer takes too long to deliver the product or service, the power may shift again because the customer no longer wants or needs the product or service because the customer has found a different source. Similarly, power can shift between other parties within the supply chain.

Governing of International Supply Chain Management

Another important consideration in understanding an international supply chain is how it is governed. In order to be successful, international supply chains need to have control and coordination mechanisms in place so that the interlocking processes flow smoothly into each other. This often results in a flatter organizational structure than in more conventional organizations, with the processes, knowledge, and power distributed throughout the system rather than centralized.

Applications

The following sections discuss a simplified example of an international supply chain and some of the issues regarding transportation — a key to success in international supply chain management.

Case Study: Production to Order in International Supply Chain Management

Meijboom describes an international case of a Dutch manufacturer of high-end children's clothing that is sold internationally. The basic construction of the clothing is outsourced to various overseas production facilities with only the final assembly being performed in-country within the organization. The processes of the supply chain include design, sales, production, and physical distribution.

Design & Purchasing

The design function comprises both creations of the new design as well as its technical realization. Even this early in the process, there is a strong relationship with the purchasing function (e.g., fabric samples need to be ordered so that prototypes of new designs can be constructed). The purchasing and design departments need to coordinate closely. The purchasing department needs to inform the design department of the expected delivery date for the samples so that the design department can schedule manufacture of the prototype. The samples also need to be tracked within the database and the warehouse of the manufacturer.

Technical Realization

Once the fabric has been received and the prototype manufactured and approved, the next step in the process is technical realization. This process requires continued cooperation between the design and purchasing functions in order to ensure sufficient supply and availability of appropriate fabrics from reliable suppliers. During this phase, database codes are released for the new creations, and product descriptions — including a list of materials and size range — are written,. At this time, the expected demand for the clothes is also determined. After these activities, the sample collections of the new creations are produced. These activities take place locally, near the organization's headquarters.

Costs & Selling Prices

Parallel to these activities, the design and sales departments work together to determine the cost of the samples as well as the selling prices of the garments. Colors and final materials for the garments are also determined at this point. Purchasing and production data (e.g., bills of materials for the various garments, specifications for cutting and assembly) are finalized and entered into the database at this time. This is also the time at which to lay the groundwork for international sales. The customs department determines which garments require additional documentation for export and tries to anticipate restrictions and possible problems with export to other countries.

Sales Activities

Once the sample collections, price lists, and promotional materials are available, sales activities begin. Orders are taken and electronically transmitted to the company's headquarters. In addition to these orders, the sales staff also offers less risky packages and a core collection for retail outlets. These must be given priority for reliable delivery time (Meijboom, 1999).

Production

Based on the orders received from the customers, the clothing line goes into production. The orders are processed by the central computer and a disposition list generated. This list is used by both the sales and the purchasing and production function. Production uses the list to procure raw materials (e.g., fabric, thread, trims) and schedule the production run. The schedule needs to include consideration of the timeframes for delivery of raw materials, lead time for the manufacturing activities, and required delivery date for the final products. When the materials are received at the warehouse, they are checked by quality control to confirm that they are the correct product and that they are of acceptable quality (Meijboom, 1999).

Construction Sets

The home plant also prepares construction sets (components of the garment) to be used in offshore operations to produce the garments. The construction sets are sent to the offshore facilities for final assembly. Distribution of the work includes consideration of delivery dates of raw materials, established arrangements with the production plants, and the specialized capabilities of these plants. Throughout the construction phase for the new line, headquarters controls the flow of goods to and from the construction plants. Information flow also includes communications between the home plant and the overseas plants concerning progress and problems. When a batch of garments is completed, it is shipped back to the home country. The customs department works to ensure that all international trade regulations are met so that the product delivery is not held up.

When the finished garments are received in the home country, they are stored locally in a warehouse. The garments are logged into the computer system, verified by quality control, and organized by color and size. Any deviations or other problems are discussed with the appropriate overseas production center. The garments are next organized by order. Shipping documents are generated and the products are shipped to customers all over the world. International shipping regulations including the filing of certificates and statements are again handled by the customs department. The orders are then shipped to the customers.

Transportation in International Supply Chain Management

Transportation is one of the keys of international supply chain management. No matter how inexpensively or how quickly a product, component, or supply can be manufactured in an overseas operation, if it cannot be delivered in a timely and cost-effective manner to the next party in the supply chain, then the cost savings are irrelevant. Transportation is the process of getting the right products to the right internal (e.g., manufacturer or other value-adding organization) or external (e.g., final consumer) party. Without an effective transportation process, the entire supply chain breaks down. To work well and to facilitate the overall effectiveness of the international supply chain, several transportation capabilities are needed: time compression, reliability, standardization, just-in-time delivery, flexibility, and customization.

A properly designed transportation process can help facilitate an efficient international supply chain that helps reduce costs. For example, faster transportation times may mean that less inventory needs to be kept on hand which, in turn, reduces costs for warehousing and investment in stock. Transportation within the international supply chain can also help optimize inventory velocity (the number of times that inventory turns annually) and dwell time (the average number of days that inventory is on hand). Typically, for every day a product is in transit, it spends 20 days in a warehouse. By using transportation cycles and inventory velocity, dwell time and concomitant costs can be reduced or even eliminated for all or part of the supply chain.

In order to be effective, however, transportation in the international supply chain needs to be reliable. This characteristic is often more important than mere speed of transport. If an organization cannot depend on its transportation partner to deliver parts, supplies, or other products consistently, then it can incur other costs such as warehousing for additional stock on hand, paying for express delivery, or losing customer sales. Another aspect of transportation reliability is the ability to deliver things not only on time, but in good condition. A rushed shipment of broken or unusable components, for example, results in additional costs not only for replacement parts, but also from lost sales, decreased customer satisfaction and loyalty, and the time necessary to reorder. Reliability of transportation can also be enhanced by standardization of transportation processes, practices, and policies. Standardization can improve the flow throughout the supply chain and make deliveries more predictable.

Just-in-Time Manufacturing

"Just-in-time" manufacturing is a manufacturing philosophy that strives to eliminate waste and continually improve productivity. The primary characteristics of just-in-time include having the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Transportation is an important part of the just-in-time process. By synchronizing transportation and delivery times with other processes in the supply chain, a just-in-time process can be enabled that reduces costs and increases efficiency.

Importance of Flexibility

Success in the international supply chain is not completely dependent on rigid schedule-keeping. Flexibility must also be built into the process, particularly in the transportation segment. Special circumstances such as emergencies or other non-recurring demands on the supply chain need to be met by the transportation segment. In order to meet the demands of supply chain partners, flexibility needs to be built into the transportation process. For example, some trucks allow side loading rather than rear loading so that it is easier to rearrange a shipping schedule to meet nonstandard delivery needs. Also, scheduling and routing processes need to be developed that have the flexibility to meet unusual needs of the supply chain partners. Similarly, transportation capabilities need to be customizable in order to optimize the integration of the supply chain.

Terms & Concepts

Globalization: Globalization is the process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside the constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

Integrated Supply Chain: A supply chain in which the component organizations are coordinated and integrated into an efficient system with the dual purposes of meeting customer demands and improving the competitiveness of the supply chain as a whole.

International Supply Chain Management: The global management of the creation and dissemination of goods and services through specific, coherent connections between processes, structures, and objectives of the members of the supply chain.

Just-in-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually improve productivity. The primary characteristics of JIT include having the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Also called "lean manufacturing."

Knowledge-Based Theory: An organizational theory that posits that knowledge is the organization's most important resource and that the organization's strength is based on its ability to create, store, and apply knowledge.

Organizational Structure: The design of an organization including its division of labor, delegation of authority, and span of control.

Supply Chain: A network of organizations involved in production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network.

Supply Chain Management: The process of efficiently connecting the parties in a value chain in order to minimize costs, enhance customer service capabilities, augment the organization’s knowledge base, maximize efficiency, and develop barriers to competitors. Supply management includes managing the flow of materials, information, and money within and between organizations in a supply chain.

Value Chain: A network of businesses working together to bring a product or service to the market. Value chains typically comprise one or a few primary suppliers supported by many secondary suppliers each of whom add value to the product or service before it is offered to the customer.

Bibliography

Connolly, K. P., Sullivan, E., Brennan, L., & Murray, J. (2005). International supply chain management: A walk around the elephant. The Irish Journal of Management, 26, 149-162. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=18710655&site=ehost-live

Harland, C. M. (2013). Supply chain management research impact: an evidence-based perspective. Supply Chain Management, 18, 483-496. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90611338&site=ehost-live

Ivanov, D., & Sokolov, B. (2013). Dynamic co-ordinated scheduling in the supply chain under a process modernisation. International Journal of Production Research, 51, 2680-2697. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=86179072&site=ehost-live

Kuei, C., Madu, C. N., & Lin, C. (2011). Developing global supply chain quality management systems. International Journal of Production Research, 49, 4457-4481. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=61215710&site=ehost-live

Meijboom, B. (1999). Production-to-order and international operations. International Journal of Operaitons & Production Management, 19(5/6), 602-619. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=2052654&site=ehost-live

Morash, E. A. & Clinton, S. R. (1997). The role of transportation capabilities in international supply chain management. Transportation Journal, 36, 5-17. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9708080847&site=ehost-live

Suggested Reading

Ahlstedt, D. & Hameri, A.-P. (2004). Review of supply chain management research: Practical business value and international aspects. Supply Chain Forum, 5, 38-48. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21192411&site=ehost-live

Akkermans, H, Bogerd, P., & Vos, B. (1999). Virtuous and vicious cycles on the road towards international supply chain management. International Journal of Operations & Production Management, 19 (5/6), 565-581. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=2052652&site=ehost-live

Houlihan, J. B. (1985). International supply chain management. International Executive, 27, 17-18. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5539854&site=ehost-live