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Cross-Border Supply Chain Management in Asia

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Title: Cross-Border Supply Chain Management in Asia


1
Cross-Border Supply Chain Management in Asia
  • Masato Abe
  • Economic Affairs Officer
  • Trade and Investment Division
  • United Nations ESCAP

2
About ESCAP
  • United Nations Economic and Social Commission for
    Asia and the Pacific
  • 58 regional members associated members
  • Policy advocacy, analytical work technical
    assistance for regional socioeconomic development
  • Headquarters in Bangkok
  • Nine branches

3
My background
  • B2B
  • Automotive, electronics and high-tech industries
    in Asia, North American and Europe
  • Supply chain management
  • Logistics
  • Procurement and supplier development
  • Planning
  • Sales operations

4
Objectives
  • Present corporate strategies and business
    practices related to cross-border supply chain
    management using a case study, which covers four
    Asian countries at the different development
    stage
  • Present theoretical background of the development
    of cross-border supply chains
  • Discuss the direction of the development of
    cross-border supply chains

5
A case study M Group Inc
  • Home Country J
  • B2B
  • Direct sales and manufacturing
  • Standardized components and tools for metal press
    dies, injection moulding and assembly lines
  • More than 1.2 million items

6
Line of business
7
M Group Inc (continued)
  • More than 20,000 customers worldwide
  • Automobile assemblers, electronic appliance
    manufacturers and high tech companies as well as
    their suppliers
  • More than 4,000 employees worldwide
  • About 200-250 employees during the 1980s
  • Sophisticated supply chain management
  • In-house ERP (IBM System 36) and EDI with
    suppliers developed in the mid 1980s

8
(No Transcript)
9
Annual sales
  • Annual turnover yen 89.1 billion in 2009
    (equivalent to approximately US 1 billion)
  • Net income Yen 3.8 billion (4.3 of annual
    turnover)
  • More than 25 of sale to foreign customers

Dot.com Crisis
Bubble burst
10
Ball guide postfor large sized press dies
11
The product
  • A standardized metal die component for automotive
    and electronic sectors
  • A long-time best selling product of M Group Inc.
  • No seasonable demand fluctuation (average 7,500
    units / month)
  • Sold through an internet ordering system linking
    to the ERP system
  • Sales price _at_US 100
  • Weight _at_5 kg

12
Three phases of development
  • First Phase 1980s
  • Direct exports
  • Second Phase 1990s
  • International procurement
  • Host country supply chains
  • Third phase 2000s
  • Regional / multilateral supply chains

13
Four countries
Sources Transparency International (2010) World
Bank (2010)
14
Phase I 1980sDirect exports
  • Foreign exchange volatility Plaza Accord in 1985
  • Customers international expansion with increased
    FDI outflows
  • Both markets and production bases
  • North America
  • Europe
  • South-East Asia FDI export driven
    development strategies
  • Less than 1 of sales to foreign customers

15
Home Country J
Phase 1 1980s
Supplier J
Country L
Country T
100Km
1 week by air
Distribution Centre J
Customers
Customers
1.5 months by ocean
Country V
16
Discussion
  • What was the advantage of direct export strategy?
  • What risk should the M Group Inc consider?

17
Challenges
  • Less international experience
  • High transportation costs
  • Price vs weight
  • Inadequate volume for ocean shipping
  • Quality vs price issue
  • No delivery tracking system
  • Unreliable delivery
  • Heavily relied on forwarders

18
Phase II 1990sHost country supply chains
  • Globalization
  • Internationalization of M Group Inc
  • Recession in Home Country J
  • Cost cutting pressure
  • Emerging economies (NIES Asian Tigers China)
  • Expanding customer base at Country T
  • Lower labour cost

19
Home Country J
Phase 2 1990s
Supplier J
Country L
Country T
100Km
5 days by air
Distribution Centre J
Supplier T
Customers
1 month by ocean
100km
Distribution Centre T
Customers
Country V
20
Discussion
  • What factors should M Group Inc assess to justify
    international procurement?

21
Challenges under Phase II
  • High inventory (carrying) cost
  • Ocean shipping
  • Long lead time (tripled)
  • Unreliable delivery
  • Large order quantity
  • Large inventory and warehouse space

22
Inventory management
Max
15500
2-month inventory
Lead time 1 month
Lead time 1 month
Inventory
Order line
7500
0.5 month delay
500
Min Buffer
0
Unfilled order
Time
23
Challenges under Phase II
  • High administrative cost
  • Order processing cost (fax email no EDI)
  • Communication (phone and fax)
  • Site visits
  • Import procedures (documentation)
  • No transport tracking system
  • Less flexibility
  • Customs clearance (Country T)
  • Slow but can make it predictable

24
Challenges (continued)
  • Unstable quality
  • Urgent shipment by air and/or hand-carry
  • Supplier development
  • Engineering consultation
  • Training
  • Incentives
  • Relationship development (trust and cooperation)

25
International ProcurementOutcomes
  • Considerable cost down in terms of CIF value
  • Cost up in terms of supply chain management
    (total cost analysis) at the beginning
  • Stabilized relationship over time
  • Gained experience

26
Phase IIIRegional supply chains
  • New emerging economies in Asia
  • China, India and others
  • Customers movements to Country V
  • Country Ls trade and investment liberalization
  • Improved road infrastructure
  • Logistical linkage between Countries T and V
  • Special economic / export processing zones
  • Increased cost cutting pressure
  • Weak demand in Home Country J
  • Intensified competition at the global level
  • Dot.com burst in 2001 and global economic crisis
    in 2008

27
Home Country J
Phase 3 2000s
Country L
Country T
5 days by air
Distribution Centre J
Supplier T
Customers
Supplier L
600km
1 month by ocean
100km
1200km
Distribution Centre T
Country V
Customers
Distribution Centre V
Customers
28
Discussion
  • What impact do you see if customs clearance at
    the borders of Country L (or Country V) were
    totally unreliable?
  • Is there any option for M Group Inc to take to
    mitigate the impact?

29
Cross-border procedures
  • Documents preparation
  • Customs clearance and technical control
  • Ports and terminal handling
  • Inland transportation and handling

30
Documents for border trade
  • Import
  • Technical standard/health certificate
  • Certificate of origin
  • Commercial invoice
  • Customs import declaration
  • Customs transit document
  • Import license
  • Packing list
  • Bill of lading
  • Cargo release order
  • Export
  • Export license
  • Packing list
  • Pre-shipment inspection clean report of findings
  • Technical standard/health certificate
  • Bill of lading
  • Certificate of origin
  • Commercial invoice
  • Customs export declaration

31
Cross-border costs
Source World Bank (2010)
32
Present Status
  • Maintain business with Supplier L, but no
    increment
  • Establish dual production lines in both Countries
    T and L
  • Consider investment, jointly with Supplier L, in
    a special economic zone of Country L
  • Test delivery to Distribution Centre V
  • Commit the development of regional supply chains

33
Cross-Border Supply Chains Drivers
  • Globalization
  • Policy Liberalization
  • Trade, investment, capital finance, HR
  • Multilateral and regional free trade agreements
  • Technological innovation
  • Transportation and ICT
  • Increasing competition
  • Pressures for low cost and high quality
  • Low labour cost

34
Drivers (continued)
  • New management strategies and techniques
  • EDI, ERP, JIT, lean manufacturing, TCM, SCM, etc
  • Willingness to be internationalized

35
Cross-border supply chains Objectives
  • Foreign market penetration
  • QDC (quality, delivery and cost)
  • Speed, effectiveness and flexibility
  • Local supplier development
  • Local content requirement
  • Strategic focus and outsourcing non-core
    functions
  • Access to expertise / technology
  • Long-term security
  • Customers request

36
Models
  • Export model
  • Foreign market penetration model
  • Offshore manufacturing model
  • Mixed model
  • Flying geese model

37
Models (continued)
  • Export model
  • No operations in importing countries
  • Foreign market penetration model
  • Marketing and distribution in importing countries

38
Models (continued)
  • Offshore manufacturing model
  • Production in host countries (low cost labour
    and/or natural resources)
  • Marketing and distribution in both home and host
    countries
  • e.g. footwear sector in Viet Nam

39
Models (continued)
  • Mixed model
  • Offshore manufacturing
  • Marketing in home and host countries
  • Export to third countries
  • e.g. Japanese auto assemblers in Thailand

40
Flying geese model
  • Catching-up process of industrialization of
    latecomer economies (Akamatsu 1962)
  • from import to production and export
  • from simple to more sophisticated product
  • from advanced to developing countries

Source GRIPS
41
FDI flows
Source ESCAP based on data from UNCTAD (2010)
42
Risks
  • Fluctuating foreign exchange rates
  • How high is operating exposures within supply
    chains, which cover various countries?
  • Linking all partners with ERP
  • Adequate ICT infrastructure?
  • Relationship with partners?
  • Cost involved?
  • HR?

43
Risks
  • Growing environmental concerns
  • Proximity to markets, production facilities vs
    supplies
  • Green transportation
  • Customer services vs SC efficiency vs
    environmental smartness

44
Future direction
  • Development of regional supply chains with less
    developed economies
  • Supply side capacity building
  • Technology transfer
  • Policy changes required (cross-border trade
    facilitation)
  • Region-wide approach to reduce transaction costs
  • e.g. ASEAN connectivity initiative
  • Pro business environment

45
Masato Abe, Ph.D. Economic Affairs
Officer Private Sector and Development
Section Trade and Investment Division United
Nations Economic and Social Commission for
Asia and the Pacific (ESCAP) Bangkok,
Thailand Email abem_at_un.org
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