International Supply Chain Management PG Commerce Essay

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The evolution of global supply chain dates back to the Roma Empire two thousand years ago. In this regard, the competitive age of globalization has brought a breakthrough and paradigm shift towards the supply chain via different phases of global sourcing.

The fast trucks of changes clearly indicate the dynamic change of global sourcing in the business environment. Accordingly, an effort has been made to clearly state the implications of the new distribution contract agreement via the current global sourcing model &US security initiative measures.

1.1. Objective

The objective of this paper is to analyze impacts of s the US supply chain security measures in place and whether the current global sourcing model will make it difficult to import goods to US ; and suggest some possible recommendations.

1.2. Scope & Methodology

The scope of the paper is limited to the analysis of the impact of supply security initiatives on Bright Spark Pty Ltd Company's distribution contract for its technological products within the US. Theoretical literature of the global supply chain systems in the developing and developed world has been assessed. An effort has been made to analyze the US security initiatives with respect the given scenario.

Challenges of the US Supply Chain Security Measures Vis-a- Vis

the Current Global Sourcing Model to Import Goods to the US

After the events of September 11 the American government and Customs launched a number of different programs which now constitute relatively comprehensive systems for imports to the USA. According to a study conducted by the Australian Government Department of Foreign Affairs, however, the measures taken to mitigate the risk of terrorist attacks would have short-term, medium and long-term impacts on world trade [3] .

Accordingly, it has been emphasized on the US supply chain security measures in place and whether the current global sourcing model will make it difficult to import goods to US. On top of that, different research findings, case studies and some conventional examples have been explored to show the impacts of the US security measures on the global movements of goods in general and the given scenario in particular.

2.1. Case Studies and Research Findings (General)

Dan Purtell Pointed out that, the biggest challenge corporations face in complying with the C-TPAT program is obtaining reliable supply chain security practices from their globally outsourced suppliers, formerly known as" business partners" both on the Customs Trade Partnership Against Terrorism (C-TPAT) and the Authorized Economic Operators (AEO) program. In this regard, Dan Purtell stresses the importance of proper risk analysis when trying to secure the international supply chain. According to the empirical analysis within the first advantage's supply chain security service unit, $1.25 trillion is exported from multiple countries that maintain a high or severe anti- Western terrorism level and approximately $750 billion of this Cargo is exported to Western Countries, such as the United States and many European Union countries (National Board of Trade, 2008) [4] . This implies the fact that, if the Companies like the given Scenario and its trading partner 'a risk country', had meet the security criteria, could able to import goods to the US market.

A case study conducted in five companies by Kansa University stated the four companies that had been C-TPAT partners for a sufficient period of time confirmed that they had faster border inspection, lower costs and greater customer satisfaction (National Board of Trade, 2008).

Singapore was the first country in Asia signed a CSI agreement with the USA. On may25, 2007 the customs administration in Singapore launched the Secure Trade Partnership (STP), a voluntary certification programme. The certification programme encourages Companies to introduce security measures in their operation in order to enhance security in the global supply chain. By being accredited in STP, companies will have a better transparency in their supply chains and undergo fewer goods inspections since they recognized as low risk companies, both in Singapore and in other countries. However, to obtain STP Certification, Companies must evaluate their internal policy, process, security management systems and risk assessment systems (National Board of Trade 2008) [5] . This is a challenge that has to be answered by the imaginary Company in the given scenario and its partners, thereby, to import goods to US.

The ipod example of global sourcing is becoming an increasingly common feature of modern supply chains. It highlights not only the potential risks but also the difficulties of managing those risks from either a business perspective in ensuring just-in-time delivery of components, or from a business and government perspective with respect to securing the supply chain from both a commercial and regulatory perspective, including potential security threats. The reality indicates that the need of convergence, cooperation and coordination between business and government in maintaining a secure supply chain to function effectively and to minimize the risks of disruptions in the flow of goods (David Widdowson and Stephen Holloway, 2009). [6] 

The advantages of membership in C-TPAT have largely been improved 'H&M's' [7] procedures (noticeably fewer security checks) and developed close cooperation with American Customs (National Board of Trade, 2008).

A supply chain disruption case study conducted in more than 800 companies' indicated that (33% to 40%) lower stock returns & higher price volatility, a 7% lower sales growth, 11 percent higher costs, and a 14 percent increase in inventories (Bosman 2006). The case study implies that, the supply chain disruption may have an impact on global sourcing due to price and cost-push effect.

"The global Supply Chain Benchmark Report published by the Aberdeen Group in June 2006 emphasizes the importance of supply chain visibility to business .It found that a lack of supply chain visibility coupled with poor automation impacts a company's bottom line through longer lead times, larger inventory buffers, budget overruns, and demand-supply imbalances (Aberdeen Group 2006)" [8] .

According to the research survey conducted by University of Virginia (2007) for the CBP, in 1756 companies and organizations, 57% of those who responded stated that the benefits of the C-TPAT program outweighed the costs [9] . In general, the survey indicated that the program provides benefits in terms of reduction in the number of inspection, fewer thefts and less shrinkage.

The US mutual agreements with New Zealand, Canada, Jordan and Japan, and the New Zealand -Japan and Japan-EU can be sited as a good example, implying to what extent Mutual Recognition is important between countries and companies, thereby to reduce the likelihood and consequences of potential risks and deploy resources towards high risk areas.

WCO subsequently raised its grave concern that the adverse impact of the US requirement upon global commerce & its adverse impact on the revised Kyoto convention to which the US has acceded (WCO).

If 100% scanning at export was implemented in European ports, it would be excessively costly, would be unlikely to improve global security, would absorb resources currently allocated to EU security interests, and would disrupt trade and transport within the EU and worldwide (the European Commission report February 2010 [10] ).

The OECD [11] , World Shipping Council (WSC) [12] , the GAO [13] and other international organisations have detailed their objection about the 100% scanning.

In general "security has become the first priority and the economic impacts of any breakdown in the supply chain have become obvious to everyone involved in international trade. Thus a number of security initiatives have been developed by the US and other international organization. The US initiatives have tended to lead the supply chain security agenda and continues to be the case, although with considerable controversy and considerable resistance from other countries and the private sector" (David Widdowson and Stephen Holloway, 2009).

Thus, more rigorous security requirements of the US initiatives, is a great challenge to the current global sourcing model due to direct or indirect total costs effects. However, the above stated cases studies and research findings indicated that meeting international security standards including the SU initiatives will simplify process and procedures and in effect international Companies like the given scenario will be cost effective to import goods to the US market.

2.2. Implications of having a key component from a "Risk Country"

Since 9/11 world trade center terrorist attack, the number of international security initiatives has been increased rapidly. "Driven by the increasing ease availability of worldwide travel and global networks, the world has become increasingly distance-less and border-less: in effect, a smaller place. Unfortunately, however, the benefits arising from the opening of the economic globalization have not been confined to legitimate entities due to the challenges of global terrorism" (CCES, 2010) [14] .

Accordingly, the implications of having a key product component sources from a "risk" country need to be seen from the angles of the above stated facts and arguments. As a case in point, in this regard Dan Purtell compares Sri Lanka and Indonesia as two interesting examples.

"Geographical neighbors, both countries are affected by terrorist activities; however, it is easily and inaccurately assumed that these countries represent the same level and type of risk to international trade. Closer analysis shows a more complex image. As the Liberation Tigers of Tamil Eelam (Tamil Tigers) in Sri Lanka is solely focused on fighting their own government and is classifies as a Nationalist group, Jemaah Islamiya (JI) in Indonesia has targeted Western interests and commerce. As confirmed by several governments JI is responsible for multiple bombings since 2001. These attacks include the Bali nightclub bombing, (which resulted in the loss of 202 lives) and the Australian Embassy and the Marriott hotel bombing in Jakarta. All of these attacks focused in Western targets as noted within JI's stated objectives and ideologies. Analysis of a terrorist group's ideologies is critical when identifying exposures within the supply chain. It would not fit within the Tamil Tiger's ideology to place a dirty bomb in a U.S. bound sea-container; however the same cannot be said about Jemaah Islamiya. First Advantage's terrorism analysts have classified Sri Lank's terrorist activities as a 'guarded' threat to Western commerce (second lowest rating), while Indonesia is classified as 'severe', the highest rating on First Advantage's five-point risk scale.

Examination of these countries' cargo disruption rates reveals that Indonesia also suffers from frequent and serious cargo tampering and disruption, while Sri Lanka's cargo tampering rate is less frequent and less sever. Given the severe terrorism and cargo disruption ratings associated with Indonesia the level of supply chain security compliance for cargo exported from this country to Western civilization should be closely scrutinized. The elevated risk factors within Indonesia, married with a business partner's poor level of C-TPAT compliance, could lead to a serious security incident within this supply chain. Suppliers operating in this region should be assessed first to determine the level of compliance with C-TPAT security criteria and the identification of chain of custody gaps that could expose a business partner's cargo to the introduction of harmful unmanifested materials.

Understanding the associated country risks within a country, as well as a business partner's operation, will significantly reduce exposures to multi-national companies that outsource in potentially high risk countries.

In conclusion, Dan Purtell states that potential terrorist activities aimed at the international supply chain could result in a very serious and global economic impact. Layering security controls throughout the international supply chain as implemented by U.S. Customs and Border protection is best served by countries that are in the process of implementing similar supply chain security programs". "A risk-based approach to understand business partners and inbound cargo exposures reduces unnecessary inspections and ensures wise utilization of limited customs organization resources," Dan Purtell concludes (National Board of Trade, 2008). [15] 

In general the analysis indicated that understanding business partner's operations, layering security controls and risk based approaches is highly significant for business companies in general and the given scenario in particular to import goods to the US and other countries.

3. Specific Analysis of the Given Scenario (Bright Spark Pty Ltd

Company)

"The economic operators ask for a quicker release of goods. The citizens fear the threats. The consumer wants safe products. Against this background, Customs are confronted with apparently contradictory objectives: The facilitation of trade, calling for faster control of merchandise flows, and the security of our citizens calling for more effective controls. The challenge is to strike the right balance between the two!" [16] ( Laszlo Kovacs, 2006).

Apparently, in the given scenario, a key component that goes into the final product is currently sourced from a country that been has listed by the US Government as a "security concern". However, the country with security concern has significantly lower labour cost than other potential suppliers; and also the company will have an opportunity to retain additional tax incentives from the government of this country.

Broadly at large, this implies the fact that, the Company's economic benefits are confronted by the challenges of the US security concerns. In this regard, the company will have to either resolve the supply chain security issues or find another source for the key components.

Accordingly, an effort has been made to clearly state the implications of new contract agreement with the current global sourcing model via supply chain management and US supply chain security initiatives.

3.1. Analysis from the perspectives of US supply chain Security initiatives

The distributor of the Company (Flotsam &Jetsam Inc.) is the member of the US C-TPAT program. From supply chain management point of view, selecting US C-TPAT program member as a distributor is primarily a strategic decision. This strategic intervention will help to facilitate the Company's operation in the USA by obtaining simplified and improved customs procedures and also to improve the overall standards for its work in the global supply chain. Moreover, will help to develop close cooperation and better communications with the American Customs. In general, the above stated cases studies; research findings & different business surveys including Virginia University indicated that the certification & membership of C- TPAT benefits outweighed the costs. Thus, the Company will have an opportunity to distribute its technology product relatively within minimum costs to the US market.

In the given scenario, it has been stated that the finished products are exported from Singapore which is a CSI port. Actually, Singapore was the first country in Asia that signed a CSI agreement with the USA & launched the Secure Trade Partnership (STP), which is a voluntary certification programme. By being accredited in STP, companies will have better transparency in their supply chains and shall undergo fewer goods inspections since they recognized as low risk companies, both in Singapore and USA. Cordially, if the Company in question certified in this program, will have a competitive advantage for technology and transfer of know-how, better coordination and simpler systems for trade facilitation and benefits in terms of time and security. Broadly, at large, exporting finished products at CSI port (Singapore), lead to greater trust, better coordination and a simpler system between the USA and the Bright Spark Plc Ltd Company. Thus, trade facilitation as a driving force behind the CSI and the early identification and inspection of containers shipped to USA; conventionally will minimize the threat of a country that has been listed by US as a "security concern".

As stated above, many international organizations argued that, the USA's initiative in respect of 100% scanning appears to be in conflict with the ideas of trade facilitation and against the principles of the certification programmes. In this regard, if the USA's proposal 100% scanning is implemented it can lead to very long waiting times in ports and hence will incure high costs for the Bright Spark Pty Ltd company. Thus, in general the short and long term sustainability of the Bright Spark Pty Ltd Company will be in trouble (question).

3.2. Analysis of Cost Implications

The rapid growth and pace of globalization is creating an all round relation ship in the world economy. However, the competitiveness of the global sourcing of supply chain is constrained by many factors including cost factors. In this regard, as a case in point the US Department of commerce has reported a 7.2% increases in year to year imports through Mexico in 2009 over the previous years. This shift of emphasis has been occurred mainly at the expense of Asia due to a number of reasons including comparatively less free trade agreements in place, increases in fuel costs and rising labour and production costs in Asia (CCES, 2010). [17] Comprehensively at large ,these cost increases in many parts of the world including Asia, may strengthen the decisions behind the given scenario (Bright Spark Pty Ltd Company ) to extend and optimize the advantages of having key component sources from a country that has a significantly lower labour & production costs.

As, SITRRO and A. Grainger (2008) [18] pointed out that, 'effective regulations of the international supply chain is all about reducing costs and adding value. Good supply chain management practices is also about reducing costs and adding value. The question of tightening-up security in terms of value and costs is no longer one of striking a balance between control and facilitation. Rather, it is a question about how to add value (security) and reduce costs'. Thus, security as a collective good reveals that, the company needs to focus on optimal security initiative investment measures.

According to the World Bank statistics, the international trade, with in the past few decades, has been increased in quantity &volume. Due to this growth effects the scope and dimension of the global supply chain systems and security initiatives has been increased. However, the evolution of different techniques of terrorism, contraband and fraudulent practices are resulting in an increasing threat to the legitimate trade and caused economic and social costs. [19] Thus, security as a critical challenge for a long time to come implies that the company needs to fulfill security initiative requirements and standards, thereby to optimize trade opportunities in the US & around the glob.

The foundation of "Customs in the 21st Century" is a cutting-edge & management of customs requirements is an important aspect of global supply chain management. However, a failure to comply with a customs administration and security initiatives will lead to significant cost. This implies the fact that international Companies including the given scenario need to be compliant with supply chain security initiatives and customs requirements to be an active participant in the international trade and expedite processing of their goods.

In general, the optimal global sourcing strategy highly requires low cost suppliers and the above cost implication analysis strengthen the practicability /idea of resolving the supply chain security issues rather than finding another source of key component.

3.3. Analysis of Economic Implications

It is obvious that in the global supply chain the rationale for offshoring [20] is economic reasons. However, macroeconomic instability such as unhealthy interaction between aggregate demand and supply (general price level fluctuations), unemployment, interest rate and exchange rate fluctuation will have an impact on global sourcing.

Research findings indicate that, the global financial crisis and US currency fluctuations still remain a challenge for offshore vendors and clients. While the Asia Pacific region is experiencing a lesser impact from the global financial crisis, varying currency exchange rates against the US dollar have affected the attractiveness of some countries in the region. Thus, the currency decline and fluctuations of the US dollar, will strongly hit the margins of all US -focused outsourcing Companies in the short and medium term. This critical challenge, however, may strengthen the decisions behind the given scenario to extend the advantages of having key component from a country that has a significantly lower labour costs and tax incentives to be competent in the US market.

Today economic conditions have been reversed and the wage rate inflation pressures have been increased, in Asia, Africa and Latin America. As a case in point the wage differences between Mexico and China have been narrowed significantly. From economic point of view, other things being kept constant, demand driven wage pressures allover the world may strengthen the decisions behind the given scenario to extend and optimize the advantages of having key component sources from a country that has a significantly lower labour costs.

The imposition of direct and indirect taxes including (income tax, corporate taxes, excise taxes, Value Added taxes and import duties) have an economic impact or total tax burden on business companies. In this respect, the issue of taxation is a big deal to business Companies. Thus, the opportunity to have additional tax incentives may strengthen the decisions behind the given scenario.

The above analysis of macroeconomic conditions such as wage rate inflation, currency fluctuation and the issue of oil costs is an ongoing challenge for the current global sourcing model, so that, currently may be difficult to find other least cost sources for the key component of the Bright Spark Pty Ltd Company.

3.4. Analysis of Risk Implications

The competitiveness of the global supply chain is constrained by many internal and external global risks and uncertainties. Accordingly, the sustainability and feasibility of the distribution contract of the technology products will be constrained by the following internal and external risk factors.

Ericsson was an often quoted example [21] implying that, the lack of supply chain risk management was the crucial point to the poor outcomes for Ericsson. Such outstanding cases reveals for the given scenario to ensure alternative suppliers and/or improving supply chain visibility in both upstream and downstream.

Macro-economic risks, such as (economic shifts, recession, exchange rates, structural and cost push inflations and price volatility; etc,) www.scribd.com ; will have a significant effect on the sustainability of the contract agreement.

Governance risks (including corruption) and risks of inconsistency and sustainability of policies, procedures, systems and controls between countries will have an impact on the distribution of technological products.

The top five 'gap' areas relating to supply chain risk were risk profile of vendors (56%), logistics capacity and congestion (47%), risk profiles of country (46%) and weather disruption and natural disaster (44%) (Aberdeen Group, 2006) [22] .This indicates the fact that the supply chain risks will be the threats of the contract agreement.

Risks of terrorism, supply chain security, standardization, product quality and supply failure; legal, cultural and language differences, transportation and communication gaps are threats of the company contract agreement.

3.5. Analysis from the perspectives of supply chain management principles and

elements

It is obvious that, any supply chain management decisions need to take into account labour costs, tax and tariff issues, especially in inter-state and worldwide contract agreements. In the given scenario, a key component that goes into the final product is currently sourced from a country that has significantly lower labour cost and the opportunity to have additional tax incentives. This should be taken as a global sourcing advantage and a good business opportunity for the Company.

Bright Spark's products are assembled from a variety of raw materials and semi-finished components that are sourced from several different countries around the world. Comprehensively, the issue of optimality in the inventory management, geographical distance, the costs of transportation and logistics, substantially will determine the amount of "total landed costs". Thus, from the angles of the supply chain management principles of lowest cost suppliers as a global sourcing strategy may attract the given scenario to focus on the country that has a lower labour costs.

Strategic decisions regarding production need to focus on what and how many products to produce and focus on capacity and quality of products. In this regard, the agreement will increase the size of the potential supply base and economics of scale of the company. Moreover, the contract agreement will create an opportunity to increase the technical expertise and core competences of the company in the global supply chain.

4. Recommendations

Optimally at large, the US supply chain security initiative analysis, the cost implication analysis, the economic and risk implication analysis have strengthen the idea of resolving the supply chain security issues rather than finding another source of key component. On top of that the following recommended measures need be taken to resolve the supply chain security issues.

4.1. Security Initiative Measures

The Bright Spark Pty Ltd Company and its business partners need to meet the US security initiative requirements including (C- TPAT &CSI) to be certified and obtain simplified and customs procedures thereby to do any business at all in the USA.

The evolution of different techniques of terrorism, contraband and fraudulent practices are resulting in an increasing threat to the legitimate trade [23] , so that, the issue security is a great challenge for a long time to come. Accordingly, the Bright Spark Pty Ltd Company must undertake substantial investment measures in security initiatives and work co-operatively with common and accepted international standards to maximize the opportunities of secured international trade benefits.

The Bright Spark Pty Ltd Company and its business partners need to be accredited for Singapore's Secure Trade Partnership (STP) programme for better transparency; trust & cooperation with the US, thereby conventionally minimize the threat of a country that has been listed by US as a "security concern".

AS, Michel Danet, Secretary General of the WCO (WCO, 2005) [24] stated, an initiatives that aims to secure the flow of legitimate goods should receive maximum support and unconditional endorsement. Thus, initiatives like Authorized Economic Operators (AEO) & Swedish Customs' Stairway programme will create an opportunity to enhance legitimate trade and, hence the Company should unconditionally endorse the implementation of such programmes.

4.2. Supply Chain Management Measures

The Bright Spark Plc Ltd Company need to design and implement supply chain management security policies and strategies thereby, to improve corporate responsibility, sustainability, economics of scale and market access.

The supply chain management decisions via the optimal global sourcing strategy highly require lowest cost suppliers (reduction of total landed costs). Hence, the company need to optimize the advantages of having key component sources from a country that has a significantly lower labour costs by investing demand driven security initiatives.

The company needs to be certified for International Standards Organization's ISO/PAS 28000 specifications of security management standards.

As, Dell company's success story, the company need to focus on value added activities (security initiatives) and meet global quality standards to gate an advantage in competitive arena.

Global supply chain management strategies of the company need to focus on efficiency improvement, network integration, synchronization and capacity building measures (such as Columbus Capacity building program), partnership and co-operation for the will & support of its government.

4.3. Risk Management Measures

The Revised Kyoto convention standards [25] recommended the implementation of risk management systems to facilitate trade with balanced regulatory control. Coherently, the company should establish risk management systems to detect risks of terrorism, corruption [26] , risks of global sourcing security, macroeconomic risks, and political risks thereby to be compatible with international standards and to increase its worldwide acceptance.

Lack of supply chain risk management was the crucial challenge for the poor outcomes of Ericsson. Broadly at large, to detect such risks and uncertainties of global emergency, the company needs to have alternative suppliers and/or improve supply chain visibility in both upstream and downstream.

As, Dan Purtell pointed out, understanding the associated country risks within a country, as well as a business partner's operation, will significantly reduce exposures to multi-national companies that outsource in potentially high risk countries.

4.4. Compliance Management Measures

As clearly pointed out by (David Widdowson and Stephen Holloway, 2009), compliance oriented regulatory initiatives be encouraged and carefully scrutinized by the company to ensure operational effectiveness and efficiency (reduction of total landed costs) consistent with the desired policy outcomes.

Failure to comply with a customs administration and security initiatives will lead to significant costs. Thus, Company need to be compliant with supply chain security initiatives and customs requirements.

5. Conclusion

The rapid growth and pace of globalization is creating an all round relation ship in the world economy. However, the competitiveness of the global sourcing of supply chain is constrained by regulatory, macroeconomic, and risk factors, and also optimally by cost and security factors.

Apparently, the Bright Spark Plc Ltd Company's economic benefits are confronted by the challenge of the US security concerns. In this regard an analysis has been conducted to brief the CEO of the Company either to resolve the supply chain security issues or find another source for the key components.

Nonetheless, the US supply chain security initiative analysis, the cost implication analysis, the economic and risk implication analysis have strengthen the idea of resolving the supply chain security issues rather than finding another source for the key component.

It is obvious that, economic impacts of any breakdown in the supply chain will have a devastating effect on international trade. Accordingly, the issue of security is a big challenge and continues to be the case for a long time to come, so that, in my opinion, the Bright Spark Plc Ltd Company must undertake substantial security initiative investment measures and work co-operatively with common and accepted international standards.

Optimally at large, the company needs to design and implement the optimal global sourcing strategy and supply chain management principles (the above recommended practices) to import goods to the US and to be competent, efficient and effective, thereby to add value (security) and reduce total landed costs.

In general, the negative and positive outcomes of outsourcing and offshoring strategies and practices have been keenly debated amongst economists and management scientists. Thus, global outsourcing cases like the given scenario are subject to debate and professional dialogue, and hence an organized research has to be conducted in-depth.

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