International Business Chapter 15 Homework Ikea Logistics and purchasing are critical functions in ensuring that materials are ordered and delivered and that an appropriate level of inventory is managed

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Global Business Today Eleventh Edition Chapter 15
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Class Discussion
Deciding whether to make or buy is a complex decision involving numerous factors. Discuss
what a firm should consider when making this decision.
Global Supply Chain Functions
A) Logistics and purchasing are critical functions in ensuring that materials are ordered and
delivered and that an appropriate level of inventory is managed.
GLOBAL LOGISTICS
B) The core activities performed in logistics are global distribution center management,
inventory management, packaging and materials handling, transportation, and reverse logistics.
C) A global distribution center is a facility that positions and allows customization of products
for delivery to worldwide wholesalers or retailers or directly to consumers anywhere in the
world. These centers are the foundation of a global supply network because they allow either a
single location or satellite warehouses to store quantities and assortments of products and allow
for value-added customization.
D) Global inventory management is the decision-making process regarding the raw materials,
work-in-process, and finished goods inventory for an MNC. The decisions include how much
inventory to hold, in what form to hold it, and where to locate it in the supply chain.
E) Packaging refers to the container that holds the product itself. Primary packaging holds the
product itself. Secondary packaging is designed to contain several primary packages. Transit
packaging is used when primary and secondary packages are assembled for transportation.
Regardless of where the product is in the global supply chain, packaging is intended to perform,
protect, and inform.
F) Transportation refers to the movement of raw material, component parts, and finished goods
throughout the global supply chain. Transportation is the largest percentage of any logistics
budget, and an even greater percentage for global companies because of the distances involved.
The primary drivers of transportation rates and the resulting aggregate cost are distance, transport
mode (ocean is the least expensive and air is the most expensive), size of load, load
characteristics, and oil prices.
G) Reverse logistics is the process of moving inventory from the point of consumption to the
point of origin for the purpose of recapturing value or proper disposal. The ultimate goal is to
optimize the after-market activity or make it more efficient.
GLOBAL PURCHASING
H) The core activities performed in purchasing include development of an appropriate strategy
for global purchasing and selecting the type of purchasing strategy best suited for the company.
There are five strategic levels of purchasing: Level I domestic purchasing activities only; level II
international purchasing only as needed; level III international purchasing as part of firms
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overall supply chain management strategy; level IV global purchasing activities that are
integrated across the firms locations worldwide; and level V global purchasing activities that are
integrated across worldwide locations and functional groups.
I) Roughly 35 percent of the purchasing in global companies today is internal and 65 percent
external. The next decision, in both internal and external purchasing, is to figure out the
outsourcing options available domestically or globally (see Table 15.2).
Managing a Global Supply Chain
A) Four important areas are of concern in managing a global supply chain including the role of
just-in-time inventory, the role of information technology, coordination, and interorganizational
relationships. Efficient logistics can have a major impact upon a firms bottom line.
CONNECT
Click and Drag
Managing the Global Supply Chain
Summary
This activity focuses on managing the global supply chain. International businesses that are
effective at managing their global supply chain can expect to reduce costs through greater
efficiency.
Activity
Students are asked to match aspects of managing a global supply chain to the correct descriptive
category.
Class Discussion
Managing the global supply chain is a complex task, but when it is done effectively, it can
reduce costs through gains in efficiency. Identify companies like Alibaba and FedEx that are
successful at managing the global supply chain and discuss what makes them successful.
ROLE OF JUST-IN-TIME INVENTORY
B) The basic philosophy behind just-in-time (JIT) inventory systems is to economize on
inventory holding costs by having materials arrive at a manufacturing plant just in time to enter
the production process, and not before.
C) Just-in-time systems generate major cost savings from reduced warehousing and inventory
holding costs. In addition, JIT systems help the firm spot defective parts and take them out of the
manufacturing process, thereby boosting product quality.
D) The drawback of a JIT system is that it leaves a firm with little inventory to respond to
changes in demand or disruptions among suppliers.
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ROLE OF INFORMATION TECHNOLOGY
E) Web-based information systems play a crucial role in materials management. Electronic data
interchange (EDI) facilitates the tracking of inputs, allows the firm to optimize its production
schedule, allows the firm and its suppliers to communicate in real time, and eliminates the flow
of paperwork between a firm and its suppliers.
COORDINATION IN GLOBAL SUPPLY CHAINS
F) Global supply chain coordination refers to shared decision-making opportunities and
operational collaboration of key global supply chain activities. Shared decision making creates a
more integrated, coherent, efficient, and effective global supply chain.
G) To achieve operational integration and collaboration within a global supply chain, six
operational objectives should be addressed: responsiveness, variance reduction, inventory
reduction, shipment consolidation, quality, and life-cycle support.
INTERORGANIZATIONAL RELATIONSHIPS
H) Trust and commitment between interacting organizations is important to an efficient and
effective global supply chain. If we always had 100 percent trust within relationships and 100
percent commitment to them, most global supply chains would ultimately be efficient and
effective. By looking at the building blocks for global supply chains, we would also assume that
not all relationships are equally valuable and that they should not be treated as if they were (see
Figures 15.5 and 15.6).
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End-of-Chapter Resources
Critical Thinking and Discussion Questions
1. An electronics firm is considering how best to supply the world market for microprocessors
used in consumer and industrial electronic products. A manufacturing plant costs approximately
$500 million to construct and requires a highly skilled workforce. The total value of the world
market for this product over the next 10 years is estimated to be between $10 and $15 billion.
The tariffs prevailing in this industry are currently low. Should the firm adopt a concentrated or
decentralized manufacturing strategy? What kind of location(s) should the firm favor for its
plant(s)?
2. A chemical firm is considering how best to supply the world market for sulfuric acid. A
manufacturing plant costs about $20 million to construct and requires a moderately skilled
workforce. The total value of the world market for this product over the new 10 years is
estimated to be between $20 and $30 billion. The tariffs prevailing in this industry are moderate.
What kind of location(s) should the firm seek for its plant(s)?
3. A firm must decide whether to make a component part in-house or to contract it out to an
independent supplier. Manufacturing the part requires a nonrecoverable investment in
specialized assets. The most efficient suppliers are located in countries with currencies that many
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foreign exchange analysts expect to appreciate substantially over the next decade. What are the
pros and cons of (a) manufacturing the component in-house and (b) outsourcing manufacturing
to an independent supplier? Which option would you recommend? Why?
4. Reread the Management Focus “IKEA Production in China, and then answer the following
questions:
a. What are the benefits to IKEA of shifting so much of its global production to China?
b. What are the risks associated with a heavy concentration of manufacturing assets in
China?
c. What strategies might IKEA adopt to maximize the benefits and mitigate the risks
associated with moving so much product?
5. Explain how the global supply chain functions of (a) logistics and (b) purchasing can be used
to strategically leverage the global supply chains for a manufacturing company producing mobile
phones.
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6. What type of interorganizational relationship should a global company consider in the (a)
inbound portion of its supply chains if the goal is to buy commodity-oriented component parts
for its own production and (b) outbound portion of its supply chains if the goal is to establish a
strong partnership in reaching end-customers?
globalEDGE™ Research Task
Use the globalEDGE™ site (globaledge.msu.edu) to complete the exercises in the text.
Exercise 1
Search phrase: Chartbook of International Labor Comparisons
Resource Name: A Chartbook of International Labor Comparisons: United States, Europe and
Asia
Website: http://www.bls.gov/fls/chartbook.htm
globalEDGE Category: Global, Statistical Data Sources
Additional Info:
The chartbook is published annually by the U.S. Department of Labor and is useful for exploring
how key labor market and other national economic measurements compare across countries. The
report is accessible both as webpages and as a PDF file.
Exercise 2
Search phrase: Logistics Performance Index
Resource Name: Logistics Performance Index (LPI)
Website: http://go.worldbank.org/7TEVSUEAR0
globalEDGE Category: Country Level, Rankings
Additional Info:
Based on a worldwide survey of operators on the groundsuch as global freight forwarders and
express carriersthe Logistics Performance Index (LPI) measures the logistics friendliness of
155 countries. It helps countries identify the challenges and opportunities they face in their trade
logistics performance and what they can do to improve. It is published every 2 to 3 years.
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Alibaba and Global Supply Chains
closing case
Summary
The opening case explores supply chain management at Alibaba, the world’s largest e-commerce
platform. Founded in 1999, Alibaba operates in 190 countries, has revenues of $23 billion, and
employs 51,000 employees. The Chinese giant has established goals of facilitating $1 trillion in
product sales annually and reaching 2 billion consumers. Alibaba already handles more than 80
percent of China’s e-commerce business.
Case Discussion Questions
1. According to Alibaba’s promotional efforts and strategic initiatives, Alibaba is on a path to
realizing its vision of facilitating $1 trillion in product sales annually as it also pursues a goal of
reaching 2 billion consumers. It is already the world’s largest e-commerce platform. Can one
company really achieve $1 trillion in sales and reach 2 billion of the world’s 7 billion people?
2. Each year, Alibaba handles more than 80 percent of China’s e-commerce business. The
company now operates in 190 countries (only 196 countries and 61 territories exist in the world).
Moving forward, the vision for Alibaba sounds simple: Bring in non-Chinese brands to the
Chinese market and expand products to customers outside of China’s borders. Do you think this
global strategy is viable?
3. The large-scale product selection that can be found on the Alibaba platforms has resulted in
some 15 billion products being sold annually and 15 million packages being shipped daily
(compared with 5 billion items on Amazon and 3 million packages per day). This puts
tremendous pressure on global supply chains. Can the supply chains continuously facilitate the
increased demand that we as customers place on the global supply chain systems?
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at full capacity. Some students may wonder whether we as consumers need to put a stop to the
online buying and the amount of packing materials that are disposed of around the world every
day. Other students, though, may argue that as online shopping replaces in-person shopping, it
also avoids the environmental degradation involved with driving to a store.
Teaching Tip: To learn more about Alibaba, go to https://www.alibaba.com.
Lecture Note: To extend this case, consider exploring Alibaba’s operations and strategy in more
depth at https://www.forbes.com/sites/panosmourdoukoutas/2018/05/06/why-alibaba-is-more-
profitable-than-amazon/#64a74cd01678 and
https://www.forbes.com/sites/hendriklaubscher/2018/07/12/the-prime-difference-between-
amazon-alibaba/#3577f2a63c47.
Video Note: To see how Alibaba works, go to
https://www.youtube.com/watch?v=gk69hV6LEgI.
CONNECT
Geography
Summary
This activity is designed to test the student’s knowledge of geography. Questions related to
chapter material are asked, requiring students to understand the topics and the locations of the
countries involved.
Activity
Students are asked to respond to a series of question related to the geographic location of several
countries.
Class Discussion
Understanding the geographic location of countries is essential to the understanding of
international business. Ask students to discuss the implications of the geographic locations of the
countries in this exercise on the subject matter.
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Continuous Case Concept
Several of the worlds automakers are in the process of revamping how they build their cars.
Toyota for example, is building a global supply chain in Thailand. The goal is to develop a
global operating platform allowing the company to build cars and supply components entirely
from outside Japan. Similarly, South Koreas Hyundai is hoping to improve its cost structure by
acquiring steel and parts suppliers. All of the Japanese and Korean companies are shifting
production offshore to minimize their exposure to exchange rate fluctuations. Toyota recently
signed an agreement with Mazda for the production of cars destined for the U.S. market.
Production will take place in Mazdas factories in Mexico. French automaker Renault bought
Romanias Dacia plant in 1999. Today, with the plant running a nearly full capacity, the
overhauled facilities produce Europes cheapest car. Ford is following a new strategy in which
the company has only a few models that it sells across multiple markets. The company is hoping
that its new One Ford approach will generate significant scale economies and other cost savings.
One model developed under this strategy, the Fiesta, was designed in Europe, is already on sale
in China, and will be introduced in the United States in 2010. With its new strategy, Ford is
hoping to cut design and production costs, and also the time it takes to get a car to market.
Ask students to consider Hyundais strategy. What advantages does it gain by acquiring
steel and part suppliers? What are the risks involved in this strategy? How will this allow
Hyundai to better manage its supply chain?
Next, consider the move by the Asian automakers to shift production offshore. Does this
strategy make sense? What are the long-term implications of this strategy? Discuss the
benefits of Toyotas move to build a global platform to build cars using components from
outside Japan. What new issues does this strategy create for the company?
Then, reflect on the strategy by Renault to acquire Dacia and to overhaul a very outdated
plant in Romania. Demand for the Dacia is very strongit is the fastest growing brand in
Europebut now Renault is considering moving production to Morocco. What are the
benefits of this strategy?
Finally, discuss the decision by the Japanese and Koreans to ramp up production in
Eastern Europe. What are the advantages of Eastern European production as compared to
production in Western Europe? Are there any disadvantages? Consider Fords world car
approach. What are the advantages of this strategy? Are there any drawbacks?
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Additional Readings and Sources of Information
Everything We Knew About Sweatshops Was Wrong
https://www.nytimes.com/2017/04/27/opinion/do-sweatshops-lift-workers-out-of-poverty.html
Why Amazon’s supply chain ambitions should have logistics companies worried
https://www.freightwaves.com/news/why-amazons-supply chain-ambitions-should-have-
logistics-companies-worried-about-their-future
IKEA is the latest big brand to feel the heat in China over Taiwan
https://money.cnn.com/2018/08/29/news/companies/ikea-china-taiwan/index.html
Apple in Talks With Sharp to Supply OLED Screen for New iPhones
http://www.bloomberg.com/news/articles/2016-09-30/sharp-to-invest-57-4-billion-yen-in-
organic-led-production
Inside One of the Worlds Most Secretive iPhone Factories
http://www.bloomberg.com/news/features/2016-04-24/inside-one-of-the-world-s-most-secretive-
iphone-factories
The Biggest Supply Chain Fallacies
https://www.forbes.com/sites/stevebanker/2018/04/09/the-biggest-supply chain-
fallacies/#a129b27263d0
Berry Global’s Supply Chain Transformation
https://www.forbes.com/sites/stevebanker/2018/10/05/berry-globals-supply chain-
transformation/#6d23524b4f09
A Look Inside: What Exactly Do You Do, Supply Chain?
https://www.bloomberg.com/careers/blog/exactly-supply chain
Cambodian female workers in Nike, Asics and Puma factories suffer mass faintings
https://www.theguardian.com/business/2017/jun/25/female-cambodian-garment-workers-mass-
fainting
U.S. Intelligence to Help Companies Avert Supply Chain Hacking
https://www.bloomberg.com/news/articles/2016-08-10/u-s-intelligence-to-help-companies-avert-
supply chain-hacking
Video: Apple's Supply Chain Winners and Losers
https://www.bloomberg.com/news/videos/2015-12-18/apple-s-supply chain-winners-and-losers
Video: How to Get More Value From Your Supply Chain
http://www.bloomberg.com/news/videos/2016-10-04/how-to-get-more-value-from-your-supply
chain
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Global Business Today Eleventh Edition Chapter 15
Hanjin Ships Get Stranded in High Seas, Roiling Supply Chain
http://www.bloomberg.com/news/articles/2016-09-01/hanjin-s-ships-get-stranded-in-high-seas-
roiling-supply chain
Alibaba vs. Amazon: The Battle Of Disruptive Innovation Beyond Traditional E-Commerce
https://www.forbes.com/sites/danielnewman/2018/10/24/alibaba-vs-amazon-the-battle-of-
disruptive-innovation-beyond-traditional-e-commerce/#1b26a1971759
Apple Said to Require Local Sourcing by Apple to Open Stores
https://www.bloomberg.com/news/articles/2016-05-25/india-said-to-require-local-sourcing-by-
apple-to-open-stores
Alibaba vs Amazon: The race to $500 billion
https://www.cnbc.com/2017/09/01/alibaba-vs-amazon-the-race-to-500-billion.html

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