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Updated: May 14, 2010 12:13 IST

Wander over the face of the earth

D. Murali
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New managers in our increasingly ‘flat’ world will inevitably face a global supply chain. A global reach adds complexity and multiplies the risk; importantly, “the bullwhip is more severe, total accumulated costs less transparent, potential problems less predictable, and communications more challenging,” cautions Kenneth M. Eades, the editor of ‘The Portable MBA,’ fifth edition (www.wiley.com).

Aptly cited in the book is the advice of John Le Carré, thus: “A desk is a dangerous place from which to view the world.” Firsthand observation of your global supply chain provides a level of understanding that cannot be gleaned from a desktop computer, the book reminds.

Go and see, therefore; or, ‘Genchi genbutsu,’ as Toyota encapsulates in one of its principles. Or, again, as an old gypsy curse reads: ‘May you wander over the face of the earth forever, never sleep twice in the same bed, never drink water twice from the same well, and never cross the same rive twice in a year.’ Pack your travel bag, the book urges of those who aspire to manage a global supply chain.

Intel’s sourcing strategies

Among the examples in the book is one about how Intel manages global outsourcing, even while regularly investing ‘several billion dollars to build or upgrade a single wafer fab in the constant pursuit of finer circuitry that allows the designers to pack more functionality into the same or less silicon, thereby further enhancing the lightning-fast processing speeds of these miracles of human ingenuity.’

Recognising the critical need to protect its intellectual property and the relatively minor role of labour cost in a multibillion-dollar wafer plant, Intel continues to fabricate the wafers in developed regions such as the US and Europe despite the higher labour cost, informs an essay on supply chain management.

In contrast, Intel operates plants in developing countries such as China and Vietnam, for the packaging manufacturing process. Why so? “This more labour-intensive stage of the manufacturing chain involves far less proprietary technology and also benefits from being closer to the electronic contract assembly plants that use Intel chips in computers, telephones, and MP3 devices – often located in Asia as well.” Software development for these devices, however, migrates to India.

Dell in Brazil

Another tale in the eminently educative volume is this one about Dell’s experience in Brazil. In 1999, when Dell entered the country, gray market producers held more than half the PC pie; five years later, the company was the market leader, but only with 4 per cent of the market share.

While Dell had gained ground against the likes of Compaq and IBM, the horde of very small informal firms had steadily gained market share, the book informs. “The share of the market held by gray market firms had grown from 50 per cent in 1999 to more than 70 per cent by November 2004.”

High tariffs and taxes were a key reason for Dell’s failure to win early in Brazil, the essay informs. It finds that by successfully avoiding payment of relatively high business and labour taxes and tariffs, gray market firms had a built-in cost advantage; and these firms were able to avoid legal penalties, too.

Tilting the playing field in the informal sector’s favour was the different set of rules the gray market functioned with. Such as, selling PCs with pirated software. “Since software represented 10 per cent or more of the total PC cost, this additional breach of the law added to the already substantial cost cushion of the gray market firms.”

Imperative read.

**

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