Arguments for Restricting the Supply Chain to Europe
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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
This report describes project work carried out in the Faculty of Arts, Computing, Engineering and Science at Sheffield Hallam University between June 2009 and January 2010.
The submission of the report is in accordance with the requirements for the award of the degree of MSc Logistics and Supply Chain management under the auspices of the University.
ANALYSIS OF THE ARGUMENTS FOR RESTRICTING THE SUPPLY CHAIN TO EUROPE
This dissertation briefly discusses about the supply chain issues faced and their impact with respect to global supply chain. Also discusses about the need for smarter supply chain. In the recent European Union policies and trading benefits, a study is done on why not to trade locally than internationally by utilizing a proper supply chain system.
This report analysis will also discuss about the recent developments in supply chain management that have concentrated on the benefit of global supply chain.
The project investigates the case for limiting the supply chain to organizations within European Commission. In particular it identifies when it is better to source locally rather than globally.
BBC British Broadcasting Corporation
CIBC Canadian Imperial Bank of Commerce
CIPS Chartered Institute of Purchasing and Supply
CSCMP Council of Supply Chain Management Professional
EC European Commission
ECB European Central Bank
EIA Energy Information Administration
EMU Economic and Monetary Union
EU European Union
FDI Foreign Direct Investment
GDP Gross Domestic Product
GM General Motors
GVA Gross Value Added
ICT Information and Communication Technologies
IMF International Monetary Fund
NBER National Bureau of Economic Research
PLC Product Life Cycle
PSC Procurement Strategy Council
Q3 Quarter 3
RFID Radio Frequency Identification
RSCM Reverse Supply Chain Management
SME Small and medium enterprises
TEU Twenty-foot equivalent
TPR Trade Policy Review
UN United Nation
WTI West Texas Intermediate
WTO World Trade Organization
CHAPTER 1: Introduction
This chapter discusses about the general agenda of research involved. 1.1 gives an outline about the background of the research. Section 1.2 will state about the objectives of the research. Section 1.3 will state about the scope involved and section 1.4 will present a structure of the dissertation and some brief summary of each chapter. In this section the reader would gain a bird's eye image on what the research is about.
1.1 Background of Research
The supply chain for the future is not to wait and react as the traditional way but the attitude is “drive fast”. Because of the demands, new technologies and new capabilities the vision on supply chain needs to be a more monitored and a smarter supply chain is what the world is looking for. After globalization the world has become a single unified market and the needs for trading is effectively high with more collaboration strategy. Due to globalization the recession which started in United States in financial crisis 2007-2009, it had spread across the world because of the inter dependence in global economy which resulted in a major downturn. According to IMF (international Monetary Fund), an economic growth of less than 3% or less is considered to be as a global recession. The recession has hit almost every country across the globe and after experiencing the tough time each one of them wants to self sustain in their internal economy.
Because of the outsourcing mostly the products across countries away from Europe, It has been become in a format that Europe have disabled in some fields for the future. Either we would be transferring our industries to make as foreign direct investment in other nations or we would be making products based on our requirements in their specialized fields which would be in more dependent criteria as which can't be produced in house. Manufacturing companies and the business nowadays is going down and they are forced to think for a new way to compete and to produce products in cost effective manner and more customer oriented. The survival had become an important issue for the industries along with competition. Now it has an impact on the unemployment as because of companies started to move their new units in other countries because of cheap labor and availability of resources. Which in turn is a huge lose for the country and for the future as it would be affecting the countries growth as a whole.
There are number of other strategies that have made the companies to go for a change in supply chain to get rid of various issues they experienced in the past. The mobile industry such as Nokia produces mobiles with various advance technologies and manufacture across the globe. The theft in the technology and the innovations of it has lead the local Asian market for an availability a far cheaper mobile with all the technologies of Nokia in local brand names. This makes the original manufacturer a vulnerable market and looses the value for product. Similarly, the Hongqi HQD is the car model which was released by manufacturer of china which is as same as Rolls Royce Phantom model. In automobile sector, Daewoo Matiz verses Chery QQ, Vauxhall Frontera verses Landwind, Honda CRV verses Laibao SRV, Mercedes C verses Geely Merrie 300, Neoplan Starliner verses Zonda A9 (Bus Model), Smart verses er. Chinese Smart, Toyota Prado verses Dadi Shuttle, Nissan XTrail verses Greatwall Sing, BMW 7 verses BYD F6 are the very interesting copied models far across every company of the world's luxurious cars been produced in China in a large scale industries with conveniently a lower price. The interesting news is all that these cars are not only look alike the same in appearance and aesthetic, but also the performance and quality records is being similar to the original ones. The international court which handles these cases results in vain for the car manufacturers as the design produced has some variation than the copyrighted original ones. It crosses from automobiles, electronics, computers, pharma industries, telecom industries, electrical items, aerospace etc. The original origin company loses a very high investment in research and development to produce a new product and the rate of return for them takes ages than the actual predicted period. Shutting down or transferring the production plant has also become a part for industries. For example, Vestas, a wind power manufacturing unit had built a new wind turbine production plant in China due to the local market demand and thereby keeping business profitable.
The purpose and motivation for me to study in this topic is because I had been studying the various reasons behind the problems that the companies faced during recession and hard to survive criteria with more problems leaving them to bankruptcy. Even the giant manufacturers in automobiles such as General motors, Ford etc, were one of the victims who were about to face the bankruptcy. The other reasons includes the design theft, information leakage, irresponsive supply chain strategy, poor visibility in supply chain, vendor management, gap between supplier and customer in 3T's (time, Transparency, Trust) , degree of control, responsiveness (change in market demand), lead time issues, global CO2 emissions, etc are the other threatening factors what the Business face. Hence, I decided to come up with a further study and development of my knowledge on these areas and come out with a report regarding the various controls that management could be able to gain to trade within near shore to survive and what are the strategies can be adopted to restrict the supply chain within Europe.
This study has basically two main elements which deal about the various past experiences faced by the companies in sourcing across supply chain as well as future supply chain needs and the benefits and positive factors that show a better scope in near future for European market. It deals with the various concepts of supply chain, relationship management strategy in sourcing, and some strategies followed by world class companies.
I believe that this dissertation would be useful as a reference for sourcing companies in future as well. Student might gain some benefits from this dissertation as this helps students to further understand the theories and other concepts involved in supply chain that have been dealt while considering some real case examples.
1.2 Objective of Research
The aims of this dissertation are basically:
1) To analyze the current and past strategies in supply chain issues
2) To analyze about the expectation for future supply chain
3) To analyze the about the advantages in trading within European Union
4) To analyze the impacts of recession on Europe and UK
5) To study the various techniques used by the world class companies to overcome the supply chain issues
1.3 Scope of Research
The scope has been narrowed down to European market in this research. The area of research has been identified after a deep analysis on the literature review. The literature review gives a general idea and background about the various supply chain requirements about the past and for future. The study is discussing about history of the European Union and trading benefits. The comparisons of the advantages and the benefits that could be available in the Europe have also been discussed. The limitations are that it is a general idea about the various issues in supply chain and a theory behind supply chain. The scope environment is for the very big companies who has already started practicing near sourcing and for the medium size companies. It would not be a better option of trading for the small companies.
1.4 Structure of thesis
Chapter 1: Introduction
The background of this dissertation will be introduced in this chapter. The objectives of the research are stated. Scope of the project is identified and the structure of the thesis is presented. The reader can obtain an overview of the thesis from this chapter.
Chapter 2: Supply chain and Issues in Supply chain
All the relevant information and materials has been gain from journals, articles, news, magazines, reference books and internet will be summarized, concluded and organized in a systematic way in both chapter 2 and chapter 3. In this chapter, general information about supply chain and Issues in supply chain faced will be presented. About the supply chain, smart supply chain, traditional issues, credit crunch impact on supply chain, various issues faced by the current and past sourcing business faced are discussed. The contents has discussed about the past and the present scenario.
Chapter 3: European Union benefits and sourcing strategies
This chapter mainly concentrates on the EU benefits provided for its fellow country members and the various advantages it has for the near and long future. The discussion about the logistical issues, Impact of recession on EU has also been made. Reader can identify a general idea about the benefits of EU for the future in trading within Europe.
Chapter 4: Methodology
This chapter discusses about the research design and methodology employed in this research. This report would carry based on the study on articles, journals, up to date news and reference books. In the literature review part, all the relevant information is compiled based on the summary of reading of reference books, journals and articles.
In the case study part, several case studies of strategies adopted by world class manufacturers to counter the recession will be discussed. The strategies included the manufacturing strategies and marketing strategies.
Chapter 5: Case study and Discussion
In this chapter, several strategies adopted by various world class manufacturers are presented and some discussion will be made. The discussion part includes the understanding and comparison of the literature review with the case studies towards the strategy.
Chapter 6: Conclusion and Recommendation
This chapter will summarize this whole dissertation and point out several vital of the research. Limitation in this research will be carried out and recommendation for future research would be made.
Chapter 7: References
All the sources for this dissertation will be arranged according to alphabetical order in this chapter. Readers can refer to the sources for further study.
CHAPTER 2: Supply chain and Issues in supply chain
This chapter discusses mainly is to present some literature review and theory from journals, conferences, magazines, text books and online news. As it is literature review all the latest information is quoted and are compiled from internet. Section 2.1 share with a general introduction on supply chain management and the traditional supply chain management worries. Section 2.2 addresses the smart supply chain and the expectations in the smart supply chain and need for it. Section 2.3 cope for global supply chain issues faced while recession and before. Section 2.4 handles the issues in supply chain faced.
2.1 Supply Chain Management
As per CIPS the definition of Supply chain could be defined as “The supply chain conceptually covers the entire physical process from obtaining the raw materials through all process steps until the finished product reaches the end consumer. Most supply chains consist of many separate companies, each linked by virtue of their part in satisfying the specific need of the end consumer.” Supply chain management may be thought of as the management of all activities aimed at satisfying the end consumer; as such it covers almost all activity within the organization. It has been suggested that it incorporates a number of key success factors which include a clear procurement strategy, effective control systems, and development of expertise. Supply chain management therefore represents and reflects a holistic approach to the operation of the organization.
As per Stevens.J (1989), supply chain could be defined as a system whose constituent parts include material suppliers, production facilities, distribution services and customers linked together via the feed forward flow of materials and the feedback flow of information.
Supply chain management is the oversight of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. The efficient supply chain management system is the one which concentrates in reducing inventory. The flow in supply chain is divided in to three main streams: the product flow, the information flow, the finances flow.
2.2.1 Traditional Supply chain issues
Supply chain is not a very new term in business and management. Since the day from which trading begun in the world, supply chain has been a part of the business. The overcoming of the current issues and risks involved has become a part of supply chain management challenges.
The four level supply chain issues stand in upstream from market place via the retailer, downstream flow activity, distribution and warehouse to factory and material flow in the form of products. There are more driving forces in a supply chain based on the industry because of the value adding operations involved. Based on (Towill, D.R., 1992), the light of information available the issues what a supply chain would get struck are perceived demand for products, which may be just a forecast from sales department, a production or value added process, information on the current performance, disturbance owing to machine / equipment or breakdowns, decision points, where the information is brought into action, transmission lags, decision rules, which is taken based on various internal decisions made in company for changing stock levels, placing new orders, etc.
The basic problem in supply chain is the demand forecasting. The operations in the supply chain gets complicated by the demand forecast (Forrester, J.W. (1961)), The smaller the lead time has also a very important and critical role to play in determining the stability of supply chain (Inger et al.), especially as Companies move into just-in-time (JIT) operations. In practice JIT pushes the effects of unpredictability upstream in the supply chain (Mallman, D. (1995)). Apart from the lead time cycle time involved plays a very critical role. In a discussion of Dr. Carlos Mena, from Cranfield University, explains the longer distance movement is the more the cycle time involved in the supply chain. Where the problems faced by the companies include the degree of control, lead time issues, additional inventory, and most importantly the cash tied up in a single place for a very long time which could be used by the companies for various other investments and the fluctuating interest rates across the companies for its money value is an interesting issue to concentrate. Other problems also include the responsiveness of the market that involved in the cycle time and delays or because of the excessive cycle time makes a very big problem and leads to trade off.
The other issues faced in the traditional supply chain as per the report by S.Mehra on International journal of production research(Aug 2005), are the strategy involved in procurement as competition on product and price, driving inventory out of supply chain, complicated Communication towards supplier making complex Supplier relationships, higher customer expectations and higher variability in demand, Contract complication leading to huge loss of business, bad Anticipation in supply chain, bringing more suppliers and going for new products are getting more complicated, achieving the entire supply chain visibility and responsibility of suppliers and customers towards the requirements, Responding quickly and critical understanding on the business on contribution on revenue and Real time information sharing.
2.2.2 Smart Supply Chain
The smart supply chain is the answer what the companies are expecting for because of the issues in supply chain faced by them and the need to go for a permanent solution. They have become used to supply chains day to day challenge because of the repeating issues.
The smarter supply chain is nothing but monitoring the entire supply chain design with more focus on transparency in entire chain with more interconnected in network and relatively a good level of collaboration with supplier and customer. The following are some of the components of the smart supply chain and some discussion on its advantages have been cited.
Supply chain reengineering:
Supply chain problems are acute with long lead time replenishment and maintaining a believable and tolerable customer service in product availability. The supply chain reengineering is the key process of identifying and designating specific tasks to the staff by making a complete involvement of staff with a two way communication in terms of openness from management.
It is atomizing the cost and time over improving the customer experience. Modifying the bad practices by identifying from the experience is a fundamental thing. Reducing cost is only key term in order to maintain and grow with margins in the current scenario. Considering the facts from the customer perspective and designing towards the source of the goods. It is done by gathering data, drawing the process map ideally starting from the customer point of view defining the problem statement, specific goal and measurable objective. A structured decision making system should be made based on prioritizing the resources and cost based on the fine target specified in the problem statement. These will give an idea of the actions to eliminate or to restructure the process for obtaining more efficient organizational structures. Challenges in current thinking give a more insight into the problem and which gives a prioritized list of alternatives to face the challenges. Planning state of identifying the causes and preventive actions should be analyzed to restructure the design or process model recommending the risk considerations. . The hardest part of reengineering is not process redesigning it but to implement it. It involves change in culture and behavior not assistance. Active tracking is needed and degree of seriousness only defines a success or failure scenario in redesigning.
As per the case study done by Littlewoods chain stores, the initiatives taken on reengineering includes a strong focus on customer management, redesign of the entire supply chain network from suppliers to stores in replacing the distribution chains and cross docking “flow through”, rebalancing the supplier base from far east to local procurement for quicker lead time and quick response, making a strong partnership with suppliers, evaluation of transportation costs by rationalizing the practices to single carried containers, reassessment of physical handling patterns, new design for better tracking and managing both product volumes and financial implications providing a scope to accelerate product flow in a more informed and cost effective way, an organizational aligned way and focus on the entire supply chain of improving the total performance and customer needs.
Supply chain & E-Procurement
As a major part of supply chain management (Leenders and Fearon, 1997; Monczka et al., 1997), supply chains in procurement are traditionally supported by information technology. The main idea of e-procurement is to include the end-user (requester) in the procurement process via an electronic multi-vendor catalog and to close the process gaps (e.g. re-entry of data) in the supply chain for indirect goods (Neef, 2001). According to Dolmetsch et al., (2000), e-procurement deals with the management of supply chains in the procurement of indirect goods are based on Internet information systems and also e-markets. The e-procurement reduces the operational functions, with increased efficiencies regarding the process and procurement costs. (Aberdeen Group, 2001); According to these studies,(Eyholzer and Hunziker, 2000; Arthur Andersen Business Consulting, 2001). e-procurement enables companies to decentralize operational procurement processes and centralize strategic procurement processes as a result of the higher supply chain transparency provided by e-procurement systems. The use of technologies like Internet in procurement is concentrated mainly in realizing the needs and to react faster and in more efficient operational procurement processes which bypass the purchasing department and enable those people to concentrate on more strategic tasks (Giunipero and Sawchuk, 2000;). In e-procurement, end users could directly search for and select products in electronic catalogs which are authorized and negotiated by strategic procurement in advance example- E-bay, Amazon etc.
The issues are really a challenge in identifying the right e-procurement strategy which is crucial to the success by selecting the right commodity of a company's solution. A second strategy is one which uses outwardly hosting catalogs on a supplier's website is also could be called the punch out mechanism. The punch out scenario helps customers to access external catalogs via their own e-procurement system (Kalakota and Robinson, 2001). A third strategy would be the use of external multi-vendor product catalogs that are hosted on electronic marketplaces. Similarly, implementing an e-procurement system in isolation without considering the entire procurement process and the systems involved will not be sufficient (Deise et al., 2000).
Technological approach With today's emphasis on the need for improvements on cost cutting and streamlining expenses, many companies are looking out for improving their bottom lines with more effective supply chains. Technology implementation is a key term which could be used in supply chain to relate and improve the supply chain beneficiaries. By understanding the process clearly involved in supply chain processes makes supplier collaboration on a whole leading a better job in avoiding risks and much lesser repetition of mistakes. Usage of technologies like RFID, simulation, better communication software etc, leading to an advantaged scenario in understanding and maintaining supply chain visibility, online tracking, traffic management, warehouse management, reporting and analysis, order management and labor management.
In the Supply chain digest 2007, the various supply chain technologies and strategies that could be implemented in supply chain are cited.
E-auctions - for bidding contract,
Labor management system in distribution - a collaboration of software, engineering and mindset to improve the logistics productivity
Spend management visibility - software used to calculate the spending of company, when, where and with what vendors providing the expensive vendor management
Demand management - by utilizing the use of technological tools, integrating the demand and sales side of the company by unifying the financial and operations plan. The consistent feedback on a regular basis brings about a structural demand.
Supplier portals - providing a demand visibility from purchase order to advance ship notice and generating an inbound shipment management by providing barcodes, RFID or other automated tracking technologies.
Network optimization - supporting global sourcing strategies, more short time inventory planning, new product introductions, sales and operations planning could be optimally balanced.
Transportation management system - software technologies used by shippers to calculate, plan and execute connection electronically with carriers by reducing costs optimal mode of transport selection, carrier assignment, consolidation of shipment and use of continuous moves in freight.
Strategic / Global sourcing - More integrated approach towards supplier selection and procurement considering the facts of time, cost, purchasing power by considering the strategies tied to off shoring and global sourcing strategies.
Wireless in warehouse - usage of wireless technologies inside the warehousing leads to a clear picture of the stock / inventory available and helps in calculating the cost involved in storage and money as inventory. As well as picking in warehouse should be automated where possible, so more visibility is available.
Yard management system and Dock door scheduling - It gives a visibility in yard inventory and schedules, executes on inbound and outbound docks.
Reverse Supply Chain management (RSCM)
The Council of Logistics Management defined reverse supply chain as "the process of planning, implementing and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal."
RSCM is defined as the effective and efficient management of the series of activities required to retrieve a product from a customer in order to either dispose of it or recover value (Prahinski and KocabasoÄŸlu , 2006; Defee et al., 2009). Fleischmann et al., (2000) base the growing importance of RSCM basically on agreements for excess products and extended producer responsibilities. As per Harvard Business review 2002, In general, the companies that create what so called as a closed-loop system, have enjoyed most success with RSCM by having a close coordination in their forward supply chain. For example, they make product design and manufacturing decisions with eventual recycling and reconditioning in mind.
The definition of reverse logistics from an environmental perspective in the forward supply chain is focus on taking return of recyclable or reusable products and materials. Reverse logistics, flow of materials from the customer to forward supply chain, is the least studied operational function (Sarkis, 2003).
2.3 Global supply chain issues
The growth in oil price will always lead to a substantial slow down in international trade because of the transportation dependency on oil market. According to the report of EIA (Energy Information Administration) (2007) the 96% of the US transportation works on the fuels, 43% of the industries runs on the fuels, 21% of the residential homes and commercials and 3% of the electric power works with the help of the fuels. This means that the US economy is related to each other and this made an impact in all areas due to the increase in oil price. In the June 2008 the price of WTI reached the maximum and that was 145 US dollars per barrel the all time highest price which US market has seen. So this made the price for the gasoline high in July 2008 to 4.10$. Based on a CIBC report 2008, the trade price increases by 1 % in every increase in 1$ for a barrel. Because of the increase in oil price directly affects the wages to decline and increased product cost. The increase in oil prices leads to elimination of importers and need to go for local suppliers. The analysis of rising oil prices would impact profitability as well as the core supply chain design. The impact for a supply chain design would lead to tradeoffs among transportation, inventory, and distribution and in all sections of supply chain. By Dr Bassam Fattouh (2007), the volatility of oil prices had lead to a challenge for the supply chain and could slow down economic growth, also can cause inflation pressures, can Create global imbalances, Volatility increases uncertainty & discourages much needed investment in oil sector, tight market conditions raised fears about oil scarcity and concerns about energy security.
The measurement of supply chain collaboration has received a little attention to date (Sanders and Premus, 2005: Jap, 1999: Injazz and Paulraj, 2004). At about that time, an ongoing discussion emerged that supply chain management should be built around the integration of trading partners (Barratt and Oliveira, 2001), the sharing of information and benefits (McLaren, 2004) and the collaboration of organizations (Patrakosol and Olson, 2006). Collaborative Planning is a first step on the road to Extended Supply Chain Management with specific customers It has a seamless fit with PSC (Procurement Strategy Council) strategy and as such is an excellent opportunity to create Customer Intimacy Through follow up implementations, we can created the chances to start gaining the first Business Benefits. Economist Intelligence unit (2006) says that the cooperation of the government and UN to designate the standards are one of the key issues faced by the SME's. Manufacturers are more concerned about the interoperability than the responds overall. A majority of survey results cites that trust in payment would be certain as a major factor that assists the companies to integrate their operations with global supply chain. In a report of ECOlogistics (2007) explains the communication gap in between the supplier and customer leads to problems in scalable issues regarding quality. The collaboration missing of the government regarding with the trading sector leads to complication in global supply network. Variation in theme of a support by the market incentives, and networks of local, social, political and moral enforcement leading to missing in regulatory systems. There “glocal” needs to be implemented, which means the global standards in the local market, Which in turn produces cost effective system with improved standards. Public - Private Partnerships in Standards Compliance Monitoring is a topic where the issues like pollution monitoring and standard should be actively monitored between outsourced destinations and trading partners on the product.
The issues facing due to non collaborative activities are such as Power imbalance in Downstream partner only interested in upstream visibility, not in upstream constraints, Upstream partner unreliable with respect to agreed shipments, Allocation of financial benefits, Collaborative Planning may reveal a change in allocation of capital investments in inventory, Inadequate ICT (Information and Communication Technologies) support The collaborative concept brings about the following advantages like , Visibility in the supply chain( Both upstream and downstream), Capability to pro activeness, Early warnings about upturn or downturn in sales, Early warnings about upstream supply constraints, Mutual understanding of process capabilities, Planning more effective and efficient, Less escalation of problems to top management, Reduction in capital invested in inventories and increased customer service
Limits emissions and waste within the planets ability to absorb them, minimizes consumption of non-renewable resources, limits consumption of renewable resources to sustainable yield level, reuses and recycles its components, and minimizes the use of land and the production of noise. Supply chains have become increasingly globalized, environmental concerns due to global warming and associated security risks regarding energy supplies have drawn the attention of numerous constituencies (cf. Cline, 1992; Poterba, 1993; Painuly, 2001) Indeed, companies are increasingly being held accountable not only for their own performance in terms of environmental accountability but also for that of their suppliers, subcontractors, joint venture partners, distribution outlets, and, ultimately, even for the disposal of their products. Consequently, poor environmental performance at any stage of the supply chain may damage the most important asset that a company has, which is its reputation. The other consequences that are to be monitored in sustainable supply chain according to the report of Accenture (2009) are to develop an integrated view of end to end supply chain, measurement performance should be meant under three dimensional angle as cost, customer service and sustainable development, keeping on mind the carbon foot print involved in the entire business case project, maximizing the rate on investment by adopting solutions to environmental issues, and using technology which is cost effective as well as green impact. Suppliers can play an important role in helping companies meet their corporate responsibility objectives. Good corporate responsibility management practice also indicates quality in supply chains.
Global CO2 issues
Energy saving and reducing the emission of global CO2 is an issue that is being focused by the world and supply chain has a greater part in global warming. Apart from manufacturing, production, the use of transportation in supply chain leads to a greater contribution for CO2 issues. The inefficient planning in supply chain like improper movement of material across the globe, in efficient use of truck efficiency leading more fuel consumption as well as waste emission, use of shipping or air mode for transportation of goods leading a solid high emission of greenhouse gases. Apart from transportation, the other factors in supply chain like more inventory, waste management, packing materials used, reverse supply chain implementation failure, absence of greener outlook on the environment by the companies, procurement strategy of considering eco friendly concept etc are the other key findings in supply chain leading a greater extend for global issues. Greenhouse gases account for approximately 1% (UN Framework Convention on Climate Change) of earth's atmosphere and act as the glass roof of a greenhouse, greenhouse gases trap heat, the natural greenhouse effect is increased by emissions of CO2 from burning of coal, oil and natural gas. Production, transportation and storage along the supply chain are the pre-dominate sources for CO2 emissions. the need for carbon footprint calculations and reporting increased exponentially, resulting in measurement of CO2 emissions as a pre-requisite in the global supply chains where significant opportunities for carbon reduction can be found. Companies have looked to their supply chain and seen areas where improvements in the way they operate can produce profits. In an attempt to reduce costs in General Motor's supply chain, GM found that the cost reductions they identified complemented the company's commitment to the environment. The carbon emissions are dependent on speed, volume, technology used in vessel building and vessel age. Newly built large ''green'' container vessels with advanced technology are normally more energy efficient than smaller counterparts. According to the CO2 emission study for vessels owned by A.P. Moller - Maersk, CO2 emission for container vessels above 10,000 TEU is almost only half of emission from container vessels under 3,500 TEU for the same cargo transported within the same distance. Similarly, different type of trucks and trains also emit different amounts of CO2.
2.4 Issues in supply chain
The other issues found in the regular supply chain are like Design theft, information leakage, irresponsive supply chain strategy, poor visibility in supply chain, vendor management, gap between supplier and customer in 3T's (time, Transparency, Trust), degree of control, responsiveness (change in market demand), lead time issue etc. These issues are dramatically gives an unclear picture for the business and they want to evolve out of these strategy which is a question on day to day activities.
As firms expand across borders and multiply their product offerings, opportunities for that happen in the entire supply chain. A survey Kroll conducted in 2007 showed that 42% of companies globally had suffered from at least one instance of either supplier fraud or physical asset theft, while 9% had experienced both. Some of the risks faced by the businesses are Acquisition or Merger Due Diligence, Data Breach Planning and Response, Trade Secret Thefts, Patent or Trademark Licensing, Counterfeiting or Pirated Products, Outsourcing Problems, Supply Chain Problems, Consultants. The increasing complexity of supply chains allows fraudsters to escape while the victim is left in confusion, trying to figure out where along the line the fraud was committed. a dark side of information sharing is ‘information leakage', which refers to how shared information could reach unintended recipients deliberately or unintentionally (Singer, 1999). Wal-Mart announced that it would no longer share its sales data with outside companies like Information Resources Inc. and ACNielsen, which paid Wal-Mart for the information and then sold it to other retailers (Hays, 2004). In Ward's 2007 survey of 447 automotive suppliers, more than 28% of the respondents said that their company's intellectual property had been compromised (i.e., leaked) by at least one Detroit automaker within the past five years; 16% of these respondents also said that their intellectual property had been compromised by transplant automakers (foreign OEMs operating in the U.S.) (Murphy, 2007). Lee and Whang (2000) highlight the risk of information leakage to competitors, specifically through the supplier, as a key deterrent to sharing information in supply chains. In a recent survey conducted by supplychainaccess.com, an astounding 64% of supply chain managers pointed to leakage of valuable information by their suppliers to competitors as one of the most significant threats to their supply chain operations (Zhang and Li, 2006).
Supply chain success just doesn't happen. It takes focus and effort across the entire company organization and with outside suppliers and service providers. Supply chain success involves process, people and technology. It gives definition to the company purpose. It enables all participants to know what is required. This in turn provides agility to handle exceptions and to adapt to changes. Logistics touches every part of a company. So supply chain management must be multidimensional in its approach and scope. And this takes process, people and technology. This is true whether you are lean and need to be agile, flexible and collaborative. Supply chains can be long and complex, stretching between different countries.
For the future requirement of supply chain to be smarter and ideal, the thinking needs to be more interconnected; more collaborated and more monitored / controlled supply chain with more response and focused on cost, time, distance travelled. Considerations towards ecological factors is also very much to be considered. To be on a safer part from recession, JIT kind of practices needs to be followed for which the supply chain should be closer and visible as much as possible. “The longer the supply chain the more complex the issues are”.
CHAPTER 3: European Union benefits and sourcing strategies
This chapter mainly concentrates on the EU benefits provided for its fellow country members and the various advantages it has for the near and long future. The discussion about the logistical issues, Impact of recession on EU has also been made. Reader can identify a general idea about the benefits of EU for the future in trading within Europe.
3.1 Countries in EU and their History
Based on the European trade commission details, the European Union was formed ready to develop social and economic growth among its members in partnership of the current 27 democratic countries. The history of the member states are
Belgium, France, (West) Germany, Italy, Luxembourg, Netherlands
Denmark, Ireland, UK
Austria, Finland, Sweden
Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
Waiting to Join
Potential Candidates: Serbia, Bosnia, Montenegro, And Albania
Candidate countries: Turkey, Macedonia, Croatia (official candidates to join the EU).
From the reports of WTO based on the economic environment of EU, the EC-27 covers a land area of 4.24million km2with a population of 495.1 million. In 2006 it had a total GDP of €11,583billion and per capita income was amounted to €23,500. After 2007 by the addition of Romania and Bulgaria EU population rose to 6.8% and land by 9% and GDP by 2%. The per capita income of these two countries is about 19.1% and 14% of the EC 27 whilst the labor productivity is 42 % and 36.2% of the EC 27.
3.2 Economic Development of EU
From the report made basis for the ninth Trade Policy Review (TPR) of the European Communities by the Trade Policy Review Body of the WTO on 6 and 8 April 2009 the following data has been stated.
The GDP growth of EU during 2006-07 was 3% as an annual average but due to the financial crisis on 2008 it fell to 1%. Based on the increase in financial revenues by the government to the member states decreased the expenditure leading to the EC fiscal deficit in GDP from 1.4% in 2006 to 0.9% in 2007 but in 2008 it was estimated for 2%. The inflation rose from 2.3% in 2006 to 2.4 in 2007 and estimated 3.7 in 2008.
The service sectors are the major backbone for the EC economy as they contribute 70% in both gross value added and employment. Whereas the manufacturing accounts the one-quarter to GVA but it is falling in the recent years due to the geographical shifts in the international activities of processing.
17% of the world merchandise trade is based on the EC and also ranks as the largest trade in services. EC also scores as the largest recipient and supplier of foreign direct Investment (FDI) accounting around 40% of inward and 50% of outward stock. The trade amount of EC in 2006 was €141.8 billion and €153.4billion in 2007.
Between 2006 and 2007 there was an economic upswing and because of which the acceleration in employment rose from 1.4% to 1.7% in the euro area. In EC 27 it raised from 1.0% to 1.6% from 2005 to 2006 but it fall to 0.7% in 2007 due to structural reforms. Vice versa the unemployment decreased from 8.2% to 7.1% in the EC-27 from 2006 to 2007. But still there are unemployment rates of member states had a highest of 11.1% in Slovakia and comparative lesser rates of 3.8% and 3.2% in Denmark and Netherlands respectively in 2007.
Based on the source of Euro stat online information (2007), there has been a drastic improvement in EC 27 for private investment in domestic demand product sectors with a growth of having 6.1% in 2006 and 5.4% in 2007. Also there had been GDP growth since 2005 with an increase in government expenditure. The exporters across EC had benefited due to the strong global demand and their growth rose to 9.1% in 2006 and it had a fall retaining 5.1% in 2007.
3.3 Future for European Union
Based on WTO report on review of EC on April 2009, as of 2009 January 16 member states have Euro as their currency. Romania will adopt in 2014. UK and Denmark retain their own currency. The other countries as Sweden, Bulgaria, Estonia, the Czech Republic, Hungary, Latvia, Lithuania, and Poland have no target dates. The common monetary policy opted by the Euro system has an independent European Central Bank (ECB) and the national central banks of the member states have opted to Euro.
The European as a whole has controversies and has disagreements that the member states have a satisfied belief that the Union is moving in the right direction. But in the Economic unification of Europe has a very satisfied report mentioning that a lot many things has been achieved so far including various trade benefits based on the survey results. The biggest strength of European Union is the number of members as of now and the future options of the new member states. The greater the involvement of the members in the union has an impact of greater centrifugal forces allowing more economical growth on the whole. Present situation talks about EU as a strong union and is going to be the strongest union among the world in a long term situation. The increase in number of new states attention to join and the stability of growth expected by the current states successively leading a phenomenal increase and massive development with one voice to the world.
The single market has an unstoppable potential growth forces for change in Europe. The present situation leads to increased “Europeanization” of products. As a consequence of utility industries, defense, construction, telecommunication etc, would become a significant source of new business for both European and non European firms. At a micro level analysis, single market will become increasingly important for both European and foreign firms. It also offers U.S firms to develop the firm's opportunity and source new skills as a part of global strategy. It also helps a significant stake for new foreign investments. The facilities in Europe will be assessing the future competitive opportunities in the common market in terms of distribution and costs with more access to maintain closer relations with customers.
3.4 EU Trade Bloc
Based on a definition on trade bloc by the United States National Policy Association is that by characteristics of Participation in a special trade relation formed by a formal agreement which facilitates trade within the members and preferences discriminating the non members; making attempts to coordinate economic policies to minimize disruption to intra bloc economic transactions; strives to reach common positions in negotiations with third countries, with other trade blocs or in multilateral forums;
Based on Randall Frost (1996), EU is the largest and far integrated trade bloc in the entire world comparatively. The concept of single market with a complete freedom of movement in goods, services, capital and people imposes a wide range of social and environmental measures. Also the monetary regulation has imposed a competitive advantage in unfair trading advantages. The Euro has a most significant and dynamic improvement in intra EU trade. By Campbell (2004), According to the economists, expect a growth in the standard of living in the euro zone members over time because of euro. It will also helps the customers and business a comparison shop in outputs and inputs which increase competition, reduced price and lower cost.
In the report by BBC, EU is the largest importer of agricultural products from developing countries and maintains a very close relationship with its former colonies. By Campbell (2004), EU has abolished tariffs and import tariffs nearly on all goods traded between the member states. The liberalization is made in the movement of capital and movement of labor. Also the emphasis of common policies had lead to join concerns leading to mutual identity, economic interest and trade rules. The free flow of goods and services had created larger markets for EU industries.
Wynne (2000) looks at how the economy of the euro area has fared under the single monetary policy, examines how successful the European Central Bank has been in fulfilling its mandate for price stability, and considers the prospects for the future. Despite the dramatic decline in the euro against the dollar over the course of 1999, the first year of EMU must be judged a success. Amuedo-Dorantes and Wheeler (2001) examines the impact that the European Union (EU) has exerted on Spanish economic activity. The main finding of the analysis is that the EU has significant impacts on the Spanish economy by affecting output and inflation in Spain. Grimwade (1999) discusses the growth of the European Union and documents higher growth in the Euro zone after the integration. Yu and Zhang (2005) examine the economic performance of the member countries of the European Union. They used four key variables GDP, pre-euro-dollar exchange rate, euro-land inflation, and unemployment rate-as indicators of current unity of the member countries. They report that the member countries of the euro-land have significant differences in terms of the status of their economic development.
3.5 Outsourcing Data of EU with China
China is the most important challenge for the European trade. EU and china trades have dramatically increased in the recent years. China had taken the open door policy as the fundamental trade policy in the economic reform launched by China in 1979. In the concurrent seven year planning of china had planned to absorb more foreign investment by using more foreign capital to develop itself. China represented an unexploited market with one billion populations. Also the government has allowed the companies to sell their 20% of the products in the local market which is also an added advantage for the foreign companies. China has also rates a very high credit rating. In a survey of commercial banks on credit worthiness among 100 countries of the world, china ranked 22nd which was higher than Soviet Union. China is one of the easier and cheapest countries for financing an investment on trade. Investment opportunities in China are plentiful. It absorbs a very great foreign capital compared to the rest of any country in the world. A statistical report of US-China business council reports a FDI investment of 40.3bn$ in 1999 and 92.4bn$ in 2008 absorbing a growth from -11.3% to 23.5%.
In 2008, a new strategic mechanism for driving economic and trade policies have been implemented between EU and china. EU's open market has been a larger contributor for China's export growth. Similarly the EU has also gained a fair trade from Chinese market.
Statistical data on EU and China trade
* EU goods exports to China 2008: €78.4 billion
* EU goods imports from China 2008: €247.6 billion
Trade in services
* EU services exports to China 2008: €20.1 billion
* EU services imports from China 2008: €14.4 billion
Foreign Direct Investment
* EU inward investment to China 2008: €4.5 billion
* China inward investment to EU 2008: €0.1 billion
EU's imports from China are mainly industrial goods: machinery & transport equipment and miscellaneous manufactured articles. EU's exports to China are also concentrated on industrial products: machinery & transport equipment, miscellaneous manufactured goods and chemicals.
Apart from china, Hong Kong is the very most important factor in china's open door programme.
3.6 Logistical Issues
According to the annual report of CSCMP (Council of Supply Chain Management Professional) which was held in United States shows that there was a surprising boom in the Logistics industries of 50% rising during the last previous years. In 2007 its shows that the Logistics business had fell down to 10 % in the US GDP (Gross Domestic Product) and its came to 9.4% in 2008. There was a massive decrease in the US logistics of 49 billion dollars in between 2007 and 2008. The increase of the costs such as the inventory carry costs, revenues, freight volumes and transportation costs made an impact in the United States supply chain. In 2008 the costs for inventory carrying were nearly to 13% and the drives of the cost in the previous years were declined in the logistics costs. The fall in carrying cast was because of the fall in inventory costs 2.2% and the fall in inventory carrying cost of 11.2%. But in the case of warehousing cost it has rose to 9.5%. All the logistics companies were forced to reduce their charges in order to run their business.
Due to recession affected all the countries chain by chain. According to the 2009 report of the CSCMP many of the logistics companies have weakened their business in transportation and their warehousing. More than 3,000 trucks were going without business in 2008. In 2008 the logistics business has dropped 3.5% and the reason for this decrease in logistics is the decline in the production in manufacturing companies. When there is no production the use of logistics will be nil. When there is demand the logistics will become demand for the moment of their goods. UPS announced that the growth for the company was down when comparing to the previous years from 2008 and it was 15% fall was recorded for the company in the year. The force on the companies to take a decision to go away from implementing new technologies into their companies especially the costly software, equipments which cost highly. As they are expensive the company is not able to implement any new technologies. The impact of the recession has declined the business with the countries such as China, India, Japan, Hong Kong and others became a cause for the reason of the decrease in logistics business especially in US and in European countries. the main scenario of the logistics business are the slight reduction of the logistics market volumes but the higher production levels has resulted moderate in the growth of European growth figures and these are accompanied by the sudden increase of competitions in this market and it makes the volume sensible like express and parcel, less than a truck load, air freight, also the ocean freight.
The sea line route between Asia and Europe has been one of the worse shapes. The Asia-Europe trade is in worse shape than most routes. Maersk Line, the market leader, said its overall rates in the first half were 46 percent lower than in the corresponding period of 2008. By contrast, trans-Pacific rates were down 20 percent and were largely unchanged on the trans-Atlantic.
Shippers who would normally cheer lower rates started sweating about carriers out of business, leaving their goods trapped on the high seas. Brett Whitfield, head of global ocean transport for Nestle, the Swiss multinational food giant, told a conference in April his company was avoiding some carriers for fear they would collapse. Average spot rates from South China to North Europe rose to $1,200 per 20-foot container and $2,120 per 40-footer in July from $760 and $1,230 in March, according to the Drewry Container Freight Rate Insight. Before the market crash, average spot rates from southern China to northern Europe peaked in January 2008 at $2,540 per 20-foot container and $4,830 per 40-footer, according to the Drewry Container Freight Rate Insight.
3.7 Global Economy Problems in Recession
The most common way to measure the economies across the world (World Economic Indicators) are: GDP growth rate, the unemployment, the rate of inflation. The movements of economic indicators are directly proportional to the trend of economic performance. As per IMF, growth of or less than 3% of economic growth is considered as global recession (Stijn and M. Ayhan 2009).
The recession that started in US affected the whole globe and affected every country leading the down fall in stock market, real estates, IT sector, manufacturing sector, tourism & hospitality sector, labor market, import export trades, oil market, and almost all the sectors. The rapid globalization process since the turn of the century has allowed Asia and the US to raise trade cooperation to a higher level. If the world does not have enough customers to consume what it produces, perhaps the world may have to produce less. The mistakes of regulators, credit rating agencies and bankers have exacerbated the problem; but the unsustainable trade imbalance has been the underlying economic problem all along.
The Chinese market became down due to the withdrawal of the US and European market. While calculating the exports the Chinese market came down from 1.1467 US dollars to 27.6% in year-round. In between this the export came down to 22% and the imports came to 23.6%. Chinese market is mainly based on the exporting consumer goods such as shoes, garments, bicycles and electronic goods such as mobile phones, computers, laptops, music systems, televisions, USB flash disks, stop watches, GPS, projection TV, etc. when people are more bothered about the financial crisis and they will stop spending money on fancy items and will reduce their daily expenses in order to live smoother with their income. China is one among the countries who is suffering from the trade protectionism in a large scale. From 2008 October to 2009 June the whole trade was impacted due to the trade investigation and it bring down the trade from 9.8 billion US dollars and it reached to the level of 113% when it is compared to the first three quarters of the 2008. US agriculture exports became depressed during the period of 2008 to 2009 by 117 billion US dollars to 96 billion US dollars. This is because of the negative effect in the world GDP and declining of price in the market. 6
As a part of the globalization more and more companies came forward for the business across the sea. In order to keep up the international standards and to capture the foreign markets the companies made effective use of their supply chain such as; standardizing the customized products and the offers which are given by the company for the products, shortening the PLC (Product Life Cycle) that is the life time of a product which reaches into the market till it decline in the market, outsourcing which can be components, spare parts, services, labors anything which buys from outside the organization and the offshore manufacturing and the convergence between the marketing and manufacturing strategies. The issue starts when the products are not getting to the buyer or the clients at the right time at the right place at the right quantity and the right quality. There will be very less problems in a small business organization and in its supply chain. When the business goes globally the company supply chain has to work on globally and will be dealing the problems in international levels and in order to keep up the standards the company supply chain have to work very efficiently and should be always alert. One the product is declined from the market it will be very difficult to come back to the same position. When the company goes globally the product and the brand have to face lots of competitions in the market and will be forced to reduce the price and have to spend the money on the advertisements accordingly to capture the customers mind as well as the global market. 19, 20
As per the NBER (National Bureau of Economic Research), there have been ten recessions since 1945. From mid 1940s till 2007, the average recession lasted 10 months, while the average expansion lasted 57 months, giving us an average business cycle of 67 months or about 5 years and seven months. In this period, the shortest recession lasted only 6 months, from January to July 1980. The two longest recessions during this period lasted 16 months each, one extending from November 1973 to March 1975, and the other from July 1981 to November 1982. There was a noticeable decline in real GDP in both of these periods. The shortest expansion period from the mid-1940s until 2007 lasted only 24 months, from April 1958 to April 1960. The longest expansion continued from March 1991 to March 2001, setting a record of 120 consecutive months of growth. The latest recession so called 2007-2008 lasted for one year and is still an unpredictable data as the economist still considers that the recession has not shut down completely. The recovery time of this recession is still not anticipated.
3.8 Unemployment in recession
Due to the sudden down of world economy the rate of unemployment became increased rapidly. The unemployment level has increased very high in European Union 27 in the 2009 may and this pathetic situation has affected the most of the members like, Estonia, Ireland, Spain, Latvian and many other countries. The least affected countries like Poland, Germany, and Slovakia are now reported as the sudden increase in unemployment. Reports from the news papers show that there increase in the current level. Due to the fall in global market the sales in most of the companies become down, this lead the manufactures and big corporate to reduce their production rather than closing the company and several big companies have shut down there production units. Many of the companies are forced to run the companies with single shift due to lack of business. Many of the companies have lost their orders as well. All these became the cause for the unemployment in the European Union. According to the facts and the reports there was a massive number of job lost have been reported in the past few months. Companies like, Skanska CZ (construction) Scoeller-Belckmann oilfield Equipment worldwide, and especially in Austria, Seq- Samro (France) and in Key Country foods (United Kingdom) have reduced their planned job massively. And companies like, Honey well (Czech Republic), ministry for human rights and minorities (Czech Republic), Arnold Clark (United Kingdom), Hyundai motors manufacturing Czech (Czech Republic) and Tesco retail (United Kingdom) has expanded their business.
Massive protests from the works and from the side of unions against the multinational companies like Sony Corporation, Toyota motors, Nippon motors Co. These companies have closed some their plants also they have cut short their thousands of workers. Theses job cuts were affected only for the temporary works and later on they did the same to the full time workers also. So this leads to a protest against the company and the government in Tokyo. According to the calculations Motorola has cut short their four thousand workers and hundred workers have been cut short in Google. In Paris two 200 workers lost their jobs in a channel and many other job lost have been reported daily. 10
3.9 UK economy in recession
The United Kingdom economy has been hit badly by the last global financial crisis (Public Information Notice 2009). The economy of UK was particularly vulnerable and weak because of the large size of its financial sector, strong cross border links and high household indebtedness. Economic growth has turned down sharply since mid-2008 causing the house prices to fall by more than 20%. The unemplo
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