In Search Of Global Scm

Editor's Notes

• #2: Good morning! Walker, that was a very interesting presentation. I’m pleased that several of our students were here to listen to your presentation. Thank you so much. As a faculty member, I would like to extend thanks to all of the executives from Walmart and the suppliers that are here participating in our 9th annual Emerging Trends in Retailing Conference, which this year is titled “World Trends in Retailing.” Our students and faculty are truly blessed to have your engagement with the Walton College. Since arriving here in 1994, Walmart and the supplier teams have been very influential in my teaching and research. It has also had significant impact on my doctoral students. Over the years my research topics have included, for example, “When is it optimal to cross dock versus holding inventory in a DC? What is the optimal size of a case pack given shelf space, demand, forecast error, lead time, and frequency of replenishment? How can POS and orders be combined to improve order forecast accuracy? How can replenishment managers be trained to improve their judgment?After finishing my PhD at Penn State, I took my first faculty position in Michigan. When I arrived here in 1994, my research interests quickly changed from manufacturing to retail and consumer products supply chain management. The supplier teams in town really intrigued me. I often asked them, “why is your team here?” “Is it a sales team?” There were very few teams here then but rarely was it obvious that the team had a very well defined charter. Here it is 2009, and I still ask that question. For some of the teams I have now asked that question to the 6th generation of team leader. I also ask it to other members of the team. You might wonder what that has to do with my presentation, “In Search of Global Supply Chain Management,” but at the very end of the presentation, I will explain the connection.For many years now I have been running the Walton College Study Abroad to China. I take a group of students to China for either 2 weeks or a month, depending on the program, and we tour transportation infrastructure, manufacturing companies, US CPG companies, the WMT DC in Tianjin, cultural sites, the largest deepwater container port in the world, the US Embassy, and everything from modern retail to wet markets. I also teach students how to use public transportation in China such as the subway system. There are many in this room that have helped me arrange these tours with your companies and I want you to know that I am grateful to you and so are our students.One of the classes I am currently teaching is Modeling Retail and Consumer Products SCM. Part of that class involves a project with WMT to create a tool and process for selection of the optimal distribution channels in global markets. Projects like that and your help with Study Abroad are invaluable to the students. Thank you very much.
• #3: I will go through these three points and then give you a key take away that ties these three together and make a recommendation. These three bullets can be thought of as concepts that companies are struggling to incorporate.
• #4: Over the past year and a half I have lived in Shanghai, China. We had our first cohort of our EMBA program meet in China and I went over, started it, and ran it there. Soon before we moved to China I helped select a partner in China and worked on a partnership with a Chinese university. We already had partners in China but we needed a special partner for this program. While I was there managing the program I also conducted several studies. Some included laboratory experiments with forecasters and inventory managers. I compared how they made decisions to how they are made in the US. I am currently studying lean manufacturing practices in China and comparing them to the US. I have also done ethics research in China. Some colleagues of mine and I are conducting research in China, India, Israel, and the US, looking for optimal responses to accusations of corporate wrongdoing.Before I tell you about that let me give you some more background. Our EMBA cohort that we ran in China had several executives from Wal-mart China, P&G, KCC, and other companies. Part of my responsibility was managing the student projects. Each student was responsible for a project where they had to utilize concepts they were learning in the program and apply it to something in their company. Most of the students had projects that had economic returns in the millions of dollars.For this particular study, I interviewed country general managers, used archival data, and used previous research of others.
• #5: Here is where I lived. In the one of the largest expat communities in the world. The reason this helped with my research is that I lived in the same area as some of the best international general managers in the world. My research started out with interviews. Originally my criteria were that the GM must have at least 10 years of experience in China, they must be working for a US multinational, they must be fluent in Mandarin, and their company must be profitable in China. After several interviews, I broadened my criteria because I continued to find interesting GMs in my expat community, some working for German companies, some British companies, and others Italian companies. I also ran across people I wanted to interview that had nothing to do with CPG but had some great insight. Many had experience as country general managers in other countries as well. This was important because my research was not really China-focused but rather global in nature. I had 2 hour recorded interviews.
• #7: I’m just going to give you one example because I don’t have time to go through all of them. The Financial Times 500 lists the top 500 companies in the world based on market capitalization.
• #11: So what we can see from this is that the change is rapid, just in the past few years. We have all seen surprising facts like this and I could share many others. These rapid changes have many implications. Obviously, they have implications for competition. They also have implications for supply and distribution channels. Some Chinese suppliers that were only capable of regional distribution a few years ago now have a global reach. This may change assumptions within the design of the supply chains. However, there is often an assumption that things will keep changing in a certain direction. I do believe we are going to see more and more companies from China and India on the Financial Times 500 list. At the same time, there are leading indicators that are perhaps considered esoteric, that may be warning of potential changes in the rate of change.
• #12: Institutional quality entails … On the vertical axis is institutional quality and on the horizontal axis is GDP per capita. What we see is that if IQ is not above a certain level, then countries GDP per capita does not exceed about $13,000. As you can see, Saudi Arabia is an exception that probably doesn’t surprise you.This is just an example of the existence of certain variables that can affect how things will change or not change in the future. Although there are many well-known variables like this, they are often ignored and simple linear projections are made.
• #13: These cost about 2,000 RMB or about $300 each. This rapid growth has many implications for marketing but it also has implications for supply chain. This exponential growth continues this year. On the one hand, it is creating shortages of certain parts. Pizza Hut, and others are using them for urban deliveries. There are many opportunities for their use in urban physical distribution but it is often difficult for those of us from the US to get our heads around their use so we continue to try to force impossible solutions like large trucks.These are just a couple of examples of rapid changes that are occurring that can have significant impacts on the supply chain but are often ignored but should be taken into account. In the global supply chain it is essential to be spanning the boundaries of the organization because there are so many things occurring that are having an impact or will shortly have an impact on the global supply chain.A competency is required for scanning the boundaries on the one hand, but on the other, translating them into implications that can be viewed in terms of opportunities and threats. At the end of the presentation I will return to this point.
• #14: Next, Much has been discovered about the global supply chain that is not well known. Just in the past few years the volume of research on the global supply chain and its management has swelled yet most managers are not aware of it. I will just give you a few examples. Even if you are aware of it, it still takes some specific competencies to implement. I will come back to that point at the end of the presentation.
• #15: All of these are based on rigorous studies that have been conducted empirically and they have particular conditions that must hold for them to be applied appropriately. This is a very small percentage of results that can be found and I just picked a few that focused on China. My purpose in showing you this is simply to give you some indication of how much is being discovered. At the end, I will propose an approach discovering these and implementing them. I will now give you an example of how understanding history can help with understanding global SCM issues. In my search for GSCM, history is one of the first places I turned. I continue to be amazed at what I am finding and how things often stay the same. I will just give you one example here.
• #16: Be careful about “best-in-class” and “world-class” when it comes to the global supply chain. We don’t need world class, we need optimal.
• #17: World class doesn’t lead to ROI maximization.On the other hand, sometimes the very practices that work in the US are exported to other countries even thought they don’t make sense from a total cost perspective.
• #18: To be able to interpret and act upon the unprecedented change in the global supply chain, To be able to scan and take into account what we do know about the global supply chain,To go for optimal and avoid trite “world-class” arguments,We need to develop a competency in rolling out global supply chain teams.Global Teams have become quite common in the past few years among leading multinationals.
• #19: Global Teams are small groups of people from different regions, countries, divisions, and/or functions. These have become very popular. Living and working in China, I have the opportunity to learn from many different people involved in these teams from many different industries. Many people believe that these types of teams are necessary to achieve economies of scale, scope, and leveraging shared learning. Not sufficient but necessary. Some research suggests that less than a fifth of such teams are successful. So this is interesting, to succeed in leveraging your global footprint for economies of scale, scope and shared learning, something is necessary that is usually not successful. This creates an opportunity. Here is where this comes back to my conversation at the beginning about my questions to the account teams in town. If you ask people on these teams why they exist, many of them can’t give you a clear explanation of why they exist, what success will look like, and where they are not responsible. When do they end?
• #20: One set of teams would be focused on global supply chain modeling.If you are interested in this topic, please let me know because I am considering putting together a small group of non-competing companies to explore approaches to making such teams successful. Since this seems to be a key to unlocking the opportunity for capturing global economies of scale and scope, it would be great to discover approaches to succeeding with them.