- COLLABORATION IN SCM AND ADVANCED TOPICS LECTURE 3 AND 4 -
From a supply chain perspective, having multiple options across the globe
always results in more robustness compared to only sourcing locally – less
dependence and risks on local party.
Sourcing decision is a supply chain trade-off:
Product cost Inventory cost (pipeline)
- Raw material.
- Labor. Inventory cost (demand uncertainty)
- Energy. - More safety stock needed.
- Equipment - Cost of capital – interest rates.
· If keeping inventory is cheap, having
Final product VS more capacity is preferred quicker
component response to demand possible.
Transport cost – right side of the balance.
- Transport rates.
· If a container size doubles, fuel needed
goes down by 1/3 transport becomes
cheaper.
Over the year changed – Over the year changed – added:
added: - Inventory cost: length of delay.
- Supply risk: - Additional capacity.
disruption
Covid-19 pandemic has caused enormous disturbances in global supply
chains.
- Ocean containers are low-cost transport because of ability to operate
with stable amount of goods.
- Shortage in shipping capacity (the sea) led to longer arrival times and
thus increased lead times.
- However, after pandemic, warehouse capacity was full which increased
costs of shipping with containers because increase in stable amount of
goods.
However, the impact of the pandemic on sourcing from China deems
negligible.
Shortage appearing overordering chain pressure index increases
cancelling orders again a lot of surplus in the inventory = bull-whip effect.
Product costs are cheaper in Asia.
Cost of capital and transport cost have been historically low pre-pandemic.
Hard to compete with countries that have low labor costs.
If lead times are longer, more safety stock is needed.
, ‘coronacrisis kondigt het einde van de globalisering aan’: not true since
sourcing in different locations provides you with more options and makes
you less vulnerable.
Transport costs have been extremely high during the pandemic
consequences:
- If products are cheap and big, these high prices have a very high
impact transport costs exceeded the value of the products in the
container.
· Low value density products (e.g., bench for the garden).
- High transport costs combined with high value density products (e.g,
laptops) have less impact.
Higher transport costs have an impact on products with low value
density.
Interest rates have gone up:
Impact on products with high volume, low margin (e.g., action).
- However, interest rates are still historically low.
·
For most products from Asia, the product cost advantage is much larger than
the additional logistics cost. Even when taking the disruption delays into
account.
- Supply risk: disruption.
- Inventory cost: length of delay.
· If the products are very cheap, increasing additional inventory
and thus costs of a new storage shed for example, is not a good
trade-off – doesn’t pay off.
Pandemic has companies to realize that their supply chain is vulnerable –
shortages, disruption, etc. e.g., two sources to be less reliable on one
supplier.
- Driver of thinking different about the supply chain and even drive
change to be prepared preparing for situations where a decoupling
of the supply chain could take place (sources that completely
disappear overnight).
The only two key drivers of substantial change are product cost and
length of delay:
Product cost:
Tariffs eat into the product costs:
From a supply chain perspective, having multiple options across the globe
always results in more robustness compared to only sourcing locally – less
dependence and risks on local party.
Sourcing decision is a supply chain trade-off:
Product cost Inventory cost (pipeline)
- Raw material.
- Labor. Inventory cost (demand uncertainty)
- Energy. - More safety stock needed.
- Equipment - Cost of capital – interest rates.
· If keeping inventory is cheap, having
Final product VS more capacity is preferred quicker
component response to demand possible.
Transport cost – right side of the balance.
- Transport rates.
· If a container size doubles, fuel needed
goes down by 1/3 transport becomes
cheaper.
Over the year changed – Over the year changed – added:
added: - Inventory cost: length of delay.
- Supply risk: - Additional capacity.
disruption
Covid-19 pandemic has caused enormous disturbances in global supply
chains.
- Ocean containers are low-cost transport because of ability to operate
with stable amount of goods.
- Shortage in shipping capacity (the sea) led to longer arrival times and
thus increased lead times.
- However, after pandemic, warehouse capacity was full which increased
costs of shipping with containers because increase in stable amount of
goods.
However, the impact of the pandemic on sourcing from China deems
negligible.
Shortage appearing overordering chain pressure index increases
cancelling orders again a lot of surplus in the inventory = bull-whip effect.
Product costs are cheaper in Asia.
Cost of capital and transport cost have been historically low pre-pandemic.
Hard to compete with countries that have low labor costs.
If lead times are longer, more safety stock is needed.
, ‘coronacrisis kondigt het einde van de globalisering aan’: not true since
sourcing in different locations provides you with more options and makes
you less vulnerable.
Transport costs have been extremely high during the pandemic
consequences:
- If products are cheap and big, these high prices have a very high
impact transport costs exceeded the value of the products in the
container.
· Low value density products (e.g., bench for the garden).
- High transport costs combined with high value density products (e.g,
laptops) have less impact.
Higher transport costs have an impact on products with low value
density.
Interest rates have gone up:
Impact on products with high volume, low margin (e.g., action).
- However, interest rates are still historically low.
·
For most products from Asia, the product cost advantage is much larger than
the additional logistics cost. Even when taking the disruption delays into
account.
- Supply risk: disruption.
- Inventory cost: length of delay.
· If the products are very cheap, increasing additional inventory
and thus costs of a new storage shed for example, is not a good
trade-off – doesn’t pay off.
Pandemic has companies to realize that their supply chain is vulnerable –
shortages, disruption, etc. e.g., two sources to be less reliable on one
supplier.
- Driver of thinking different about the supply chain and even drive
change to be prepared preparing for situations where a decoupling
of the supply chain could take place (sources that completely
disappear overnight).
The only two key drivers of substantial change are product cost and
length of delay:
Product cost:
Tariffs eat into the product costs:
