Supply Chain Issues from Canada to China

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Recently an opening of the economies of developing nations, especially China, has allowed a huge shift in outsourced production. For the most part the products of the outsourcing are destined for North American consumption, which creates interesting obstacles to the realizations of improvements predicted. Mega Bloks Inc is a Canadian example of this trend, having recently made their own foray into outsourcing to China. An examination of supply chain issues reveals the overall complexity and number of issues which could develop for a company like Mega Bloks. More specifically, for Mega Bloks issues of logistics, regulation, control (in general and specifically of quality) come to the forefront. All of these issues can individually and in aggregate lengthen the supply chain and as a result increase costs well beyond the optimistic predictions of the savings to be gained from outsourcing. However, if the issues are identified and analyzed companies like Mega Bloks can control the supply chain. It can be proposed that the tremendous growth in global trade experienced in recent decades and the liberalization of closed economies were, in large part, correlated with large investments in designing and managing vast supply chains that span countries and continents. The advances in outsourcing (particularly offshoring) and supply chain management have ushered in such immense successes for many companies that it is often depicted as something of a magic bullet – a panacea for all the operational woes of catering to an increasingly fast-paced, competitive, and consumerist market. More and more businesses are buying into this outsource and supply chain euphoria. A study conducted by AMR Research indicates that more than three-quarters of the 300 North American manufacturing and distribution companies surveyed had developed supply chain organizations . Many such deals are big and strategic enough to qualify as "bet the company" arrangements involving a complex mix of people, processes, and assets. Indeed, almost 100 megadeals (contracts with values of greater than $1 billion) have taken place in the past ten years, with 15 in 2003 alone . However, there are many indications, that supply chains when misunderstood and improperly designed can wreak havoc to the operations of a company, which eventually are reflected in the bottom line and the overall financial health of the company. Corporations still rely on a standard procurement approach, with contracts and agreements managed by individual departments—the way they make commodity purchases. This mind-set is underscored by the increasing use of third-party consultancies, which often reduce the bidding process to a commodity comparison of vendors that limits transparency and that uses price as the primary decision-making factor. Many companies with traditional outsourcing agreements have focused only on the embedded value of an agreement-which in many cases is the cost savings realized by the buyer or the new revenue streams created by the vendor. As a result, inaccurate estimates of the total value lead to incorrect revenue distribution between the buyer and the vendor. Not surprisingly, up to 50 percent of outsourcing arrangements fail to deliver the expected value . With these supply chain issues in mind, we now turn to Mega-Bloks Inc. for a case analysis of a Canadian manufacturer who recently extended their supply chain by manufacturing in China. Mega Bloks is a Canadian toy company based in Montreal, Quebec specializing in interlocking building block and other resin based toys. As of March 15, 2006, Mega Bloks announced that after their acquisition of Rose Art Industries Inc. in July of 2005, they will move their manufacturing to a Rose Art Industries factory in Shenzhen, China, closing all North American production facilities and constructing a new warehouse in Tacoma, Washington. The stated purpose of this move is to "leverage combined strengths….(to) focus on our...
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