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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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 firm’s

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overall supply chain management strategy; level IV global purchasing activities that are

integrated across the firm’s 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 firm’s 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 ground—such as global freight forwarders and

express carriers—the 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 world’s 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 Korea’s 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 Mazda’s factories in Mexico. French automaker Renault bought

Romania’s Dacia plant in 1999. Today, with the plant running a nearly full capacity, the

overhauled facilities produce Europe’s 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 Hyundai’s 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 Toyota’s 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 strong―it is the fastest growing brand in

Europe―but 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 Ford’s 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 World’s 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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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