Off shoring decisions: Total Cost -1

Performance Dimension
Order communication SC Visibility Raw material costs Unit / Conversion costs Freight costs Taxes & tariffs

Activity Impacting Performance

Order placement Scheduling & expediting Sourcing of raw materials

Impact of Off shoring

More difficult communication Poorer visibility Could go either way depending on RM sourcing Labour / fixed costs decrease Quality may suffer Higher freight costs Could go either way

Production, quality & transportation

Transportation modes & quantity`` Border crossings

Supply lead time

Order communication Supplier prodn scheduling Prodn time, customs, transportation, receiving

Lead times increase results in poorer forecasts and higher inventories

Off shoring decisions: Total Cost -2

Performance Dimension Activity Impacting Performance Impact of Off shoring
Poorer on time deliveries & increased uncertainty results in higher inventories & lower product availability Larger minimum quantities & increased inventories If any takes long time to replenish Increase Increase Higher

On time delivery / Prodn, quality, customs, LT uncertainty transportation, receiving

Minimum order quantity Product returns Inventories Working Capital Hidden costs

Production, transportation Quality LT, GIT, Production Inventories & financial reconcilliation Order communication, invoicing & errors, managing exchange rate risk

Stock outs

Ordering, prodn, transportation & poorer visibility

Increase

Risk Management in Global Supply Chains -1

CATEGORY
Disruptions

RISK DRIVERS
Natural disasters, war, terrorism, Labour disputes Supplier bankruptcy High capacity utilisation at supply source Infexibility of supply source Poor quality of yield at supply source
Information infrastructure breakdown System integration or extent of systems been networked Inaccurate forecasts due to long lead times Seasonality Product variety Short life cycles Small customer base Information distortion

Delays

Systems risk Forecast risk

Risk Management in Global Supply Chains -2

CATEGORY
IP risk Procurement risk

RISK DRIVERS
Vertical integration of SC Global outsourcing & markets Exchange rate risk Price of inputs Single source Industry wide capacity utilisation

Receivables risk
Inventory risk

Number of customers Financial strength of customers

Rate of product obsolescence Inventory carrying cost Product value Demand & Supply uncertainty Cost of capacity Capacity flexibility

Capacity risk

Demand forecasting in a Supply Chain

Components of forecasting
Past demand Lead time of product replenishment

Planned advertising or marketing efforts

State of the economy

Planned price discounts

Actions that competitors have taken

Basic approach to Demand forecasting

Understand the objective of forecasting Integrate demand planning & forecasting throughout the Supply Chain

Understand & identify customer segments

Identify the major factors that influence the demand forecast

Determine the appropriate forecasting technique

Establish performance & error measures for the forecast