Incoterms 2010 and International Business - 101
International Business: Environments and Operations, 15e (Daniels et al.)
CHAPTER EIGHTEEN: GLOBAL MANUFACTURING AND SUPPLY-CHAIN MANAGEMENT
CHAPTER EIGHTEEN: GLOBAL MANUFACTURING AND SUPPLY-CHAIN MANAGEMENT
OPENING CASE: Apple’s Global Supply Chain
This case describes how Apple Inc., an American multinational corporation headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and personal computers developed its global manufacturing and distribution systems.
Questions
18-1 Although Apple’s inbound logistics began with Apple controlling the assembly of its computers, it shifted to having suppliers acquire raw materials with contract manufacturers handling most of the production and assembly of final products. Why did they do this, and what are the major challenges Apple faces?
Apple has continuously sought low-cost manufacturing options, including through the use of overseas suppliers. But it has also made a strategic decision to partner with manufacturing companies that understand Apple products require different techniques and approaches, which often must be accomplished with very little lead time. The company established a formalized list of expectations for suppliers, creating exclusivity agreements in return for volume guarantees. (LO: 1, Learning Outcome: To describe the different dimensions of a global manufacturing strategy, AACSB: Analytical Skills)
18-2 Foxconn, a major contract manufacturer for Apple, is by far the largest ODM/EMS (original design manufacturer/electronic manufacturing services) company in the world, dwarfing U.S.-based Flextronics, which is the major manufacturer and assembler of Samsung phone. In 2013, Foxconn was contemplating opening operations in the United States. In what way could this be a challenge for Apple, Inc.?
One challenge would involve engineers being brought to China to learn Chinese, so as to have firsthand experience in the manufacturing process. Foxconn will also face some new challenges in the U.S. dealing with the obvious differences between China and the U.S, with regard to labor and environmental protection regulations. (LO: 2, Learning Outcome: To examine the elements of global supply-chain management, AACSB: Dynamics of the Global Economy)
CLOSING CASE
Nokero: Lighting the World
Nokero is a born-global social enterprise that markets solar light bulbs to over 90 countries. The organization was started by Steve Katsaros, an inventor and entrepreneur. Upon receiving a patent for his bulb technology, he received start-up capital from investors in Hong Kong and China. The company maintains the goal of delivering environmentally friendly solar products that are affordable to those most in need. The product was designed to reduce the use of kerosene and diesel in regions that have shortages of electricity. Nokero has engaged corporations, governments, international agencies, and NGOs on collaborative social programs related to environmental sustainability, renewable energy, poverty alleviation, and disaster and relief projects. The company has benefited from dozens of favorable stories in print media, TV networks, and social media around the world. Consequently, demand for the product has increased significantly. The organizational headquarters are located in Denver, Colorado, but the sole supplier of the company’s product is located in China. Sales are driven through direct, Web-based sales and through licensed distributors around the world. The company is facing issues related to: what market segments should the company focus on for profitable growth? Where should the company grow? And, how should the company manage its supply chain to support company growth? Increasing demand may force the company to expand its supply chain to include an additional supplier. As orders for the product become greater in quantity and more globally expansive, supply chain management will be a critical concern.
QUESTIONS
18-3 What type of manufacturing strategy should Nokero pursue? Should it continue to supply all of its light bulb orders from a single factory in China?
Depending upon the magnitude of increasing sales, the company may want to adopt a regional manufacturing and distribution strategy. As the product further globalizes, shipping and supply concerns may require the company to undertake a larger portion of the production process, or at a minimum, expand the supply capabilities of the single supplier located in China. (LO: 2, Learning Outcome: Examine the elements of global supply chain management, AACSB: Analytical Skills)
18-4 In terms of distribution networks, should Nokero maintain fulfillment warehouses in Africa, Asia, and Latin America? How should Nokero address the last mile issue of accessing people in the most remote locations?
Yes, they should maintain the fulfillment warehouses; however, they need to address and resolve the issue of updated international pricing of shipping charges. With reference to the last mile issue, Nokero has identified that it is beneficial to educate users about the product attributes and usage. Nokero has decided to partner with companies that have a strong reach and connection with customers in remote locations, even hiring local employees to help with communication and distribution of products. (LO: 2, Learning Outcome: Examine the elements of global supply chain management, AACSB: Analytical Skills)
18-5 How should Nokero build its distribution footprint in international markets? What regions should it emphasize?
Nokero needs to reach out to customers and new markets that could benefit from their solar light bulbs. Nokero needs to bring down sourcing, manufacturing, and distribution costs to make the product more affordable to its customers, and must work on developing a distribution program to reach out to customers in remote locations. (LO: 2, Learning Outcome: Examine the elements of global supply chain management, AACSB: Analytical Skills)
18-6 A number of potential distributors have asked Nokero for exclusive rights in key geographic markets. Should Nokero grant exclusive country distribution rights? What performance standards or metrics should Nokero put in place for its distributors?
If Nokero were to grant exclusive rights in key geographic markets, they would have to set up specific minimum sales quotas; however, they also need to be able to control prices as making this part of any agreement, as the product needs to be affordable to all its customers. (LO: 4, Learning Outcome: Describe how information technology is critical to an effective global supply chain strategy, AACSB: Analytical Skills)
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