Business Plan for Slow Wing Aircraft
This business plan provides an environmental assessment of Brazil, and identifies major logistics and supply chain management issues associated with setting up a wholly owned subsidiary in Brazil. Recommendations concerning the best city to establish a manufacturing and supply chain operation to meet the long-term goals of the company are provided, as well as a high level logistics and supply chain management plan to support the location of Belo Horizonte recommended herein. Belo Horizonte is situated near several port cities including Santos and Tubarao (see map of Brazil at Appendix B) and is currently headquarters for aircraft manufacturer Aero Bravo, among others.
Today, Brazil is the fourth largest aircraft producer in the world (Fisher, 2002) and its economy is the largest in South America (Brazil, 2009). Notwithstanding the geographic distances involved between Brazil and the United States, the country is becoming an increasingly important exporter of goods of all types and is well situated to take advantage of new opportunities for establishing strategic alliances with companies in the United States. In spite of its attractiveness as a potential site for Slow Wing’s secondary operations needs, there are some considerations that must be taken into account in order for such a venture to be successful. Although Brazil has enjoyed a good economic run, there is always the inherent risk of economic instabilities that may jeopardize even the most thoughtful approach to establishing these operations in another country. As Hoffman, Kamm, Frederick and Petry (1999) emphasize, “Multinational corporations considering doing business in Brazil must weigh the risks inherent in economic instability. Firms which decide to do business in Brazil generally have sufficient resources to commit long-term, with the flexibility to leave returns for future balance sheets” (p. 95). Furthermore, also a leading economy in South America, there are some important cross-cultural differences between the U.S. And Brazil that will affect the rate at which Slow Wing will be able to accomplish the formation of strategic alliances and supply chain needs envisioned by this initiative. In this regard, Hoffman and his associates emphasize, “Multinational corporations should not assume that the relative speed of transition which is typical for ventures in, and with firms in, the industrialized world will be the same when working in industrializing countries” (p. 95). Finally, Drake (2004) cites several examples of American firms seeking to establish operations in Brazil and concludes, “Doing business in Brazil is potentially costly and dangerous” (p. 1147). Therefore, Slow Wing’s approach to establishing secondary operations in Brazil must proceed in a thoughtful and cautious manner, taking the following issues into consideration as the plan proceeds.
Supply Chain Plan
Availability and quality of suppliers. As noted in the executive summary, today, Brazil’s economy is larger by far than the other countries of South American and is characterized by mature manufacturing and service sectors (Brazil, 2009). It is also the world’s third-largest aircraft manufacturer (Fisher, 2002). Furthermore, Brazil’s exports have been increasing for the past 15 years and are expected to continue to grow despite the current global economic downturn (Brazil, 2009). According to Reddy and Reddy (2001), many transportation-related manufacturers in Brazil are well experienced in providing customer-centric products that will be of value to Slow Wing. These authors report, “Firms have been shifting more manufacturing responsibility to their suppliers. For example, VW in Brazil has production facilities where the suppliers run the assembly line. Innovative steps like this can allow even a firm in the traditional manufacturing industries to be customer-centered” (p. 85). The geographic distances involved notwithstanding, Brazil enjoys modern port facilities and the availability and quality of the suppliers needed for the initiative envisioned herein are deemed sufficient for the company’s needs (Brazil, 2009; Fisher, 2002).
Availability and Quality of Third-Party Service Providers. Brazil has more third-party service providers than any country in South or Central American today. For instance, there are currently 14 third-party service providers in Brazil, compared to five in Colombia, seven in Argentina, five in Chile, two in Bolivia, three each in Ecuador and Paraguay, four in Venezuela and one in Uruguay (Third party service providers, 2009).
Sourcing and Procurement Strategy. By contracting with local part suppliers and vendors for the company’s other needs in its secondary operations in Brazil, the value-added aspects of the company’s operations can be reaped while avoiding unnecessary warehousing and transportation charges. This aspect of the business plan is one of the most important to take into account. According to one authority on supply chain management, “As a factor in supply chain management, the combined entity of purchasing, procurement and sourcing is one of the most important. Indeed, supply management is the first area of focus for virtually every firm embarking on a supply chain effort” (Poirier, 2002, p. 43). As a company’s supply chain matures to Level 3 and beyond (see Table 1 below), additional savings are typically realized through a combination of decreased transaction costs, identifying new sources for goods and services which may extend globally, though lowered transportation and logistics costs, the use of contract suppliers for various subassembly requirements as well as reduced inventory and carrying costs (Poirier, 2003).
To the extent that a Brazilian supplier’s operations and corporate culture are consistent with Slow Wing’s organizational goals and performance management approach will likely be the extent to which the sourcing and procurement function will be facilitated. In this regard, Poirier reports that, “Supply chain efforts progress through five levels in a sequence. As a firm moves through these levels, the various functions make progress or they restrict the overall effort” (p. 21). Table 1 below provides an overview of the major business applications concerning sourcing and procurement as defined by Poirier.
Table 1
Sourcing and Procurement in the Evolution of the Supply Chain
Progression/
Business Application
Levels 1 & 2
Internal Supply Chain Optimization
Level 3
External Network Formation
Level 4
Value Chain Constellation
Level 5
Full Network Connectivity
Supply Chain Optimization
Advanced Supply Chain Management
e-Commerce
e-Business
Design, Development Product/Service Introduction
Internal Only
Selected External Assistance
Collaborative Design — Enterprise Integration and PIM-Linked CAD/CAM
Business Functional View — Joint Design and Development
Purchase, Procurement, Sourcing
Leverage Business Unit Volume
Leverage Full Network through Aggregation
Key Supplier Assistance, Web-based Sourcing
Network Sourcing through Best Constituent
Source: Excerpted from Poirier at p. 22.
According to Poirier, most companies occupy the first, or beginning, level of supply chain evolution; however, as the firm’s supply chain evolves into the higher levels, companies will begin to reap the economic benefits of using external resources to achieve their organizational goals. As Poirier emphasizes, “It is here that the external network formation begins, as the focus is on advanced supply chain management. The value chain constellation appears in Level 4, as current leaders display features of e-commerce, collaborate with allies in the digital economy, and apply cyber-based technologies in their relationships” (p. 22).
Planning and Forecasting Strategy. One authority on organizational decision making, Makridakis (1990), emphasizes that a comprehensive understanding of the principles of forecasting and decision making, together with a fundamental understanding of how and why past efforts have failed, will help companies of all types develop future-oriented decisions in planning and strategy. The process of planning and forecasting is based on the quality of information available, and Makridakis (1987) recommends the following:
1. To avoid biases in information acquisition it is necessary to sample “information from as wide a base as possible.” To avoid accepting false forecasts in haste one should find “disconfirming” data and hypotheses.
2. As people are inefficient in aggregating information, this should be done mechanically.
3. To avoid false attributions of apparent causes (“illusion of control”), greater care needs to be exercised when interpreting the causes (p. 548).
Notwithstanding the foregoing recommendations and the need for high quality information, Makridakis also suggests that in the context of forecasting and planning, simple methods of forecasting such as simple average of expert group opinion have frequently outperformed more sophisticated approaches (1987). There are several factors that must be taken into account in formulating an efficient planning and forecasting strategy that will be supportive of the proposed inventory management strategy (this is discussed further below). For instance, Boyson, Harrington and Corsi (2004) emphasize that, “In most supply chains today, uncertainty and/or a lack of current information causes organizations and their trading partners to accumulate inventory as insurance against potential service or fulfillment failures. One way to minimize such inventory buildups is to reduce uncertainty by improving the flow of information within an organization and between an organization and its extended enterprise supply chain partners” (p. 36). This enhanced ability to communicate in real-time is reflective of Levels 4 and 5 of the supply chain evolution process described in Table 1 above and would require Brazilian part suppliers and warehousing vendors that possessed the requisite computer-based telecommunications and inventory management software applications that would needed to maintain close contact as Slow Wing’s inventory needs changed over time and to ensure that unnecessary buildups of inventory are not allowed to occur which would create additional expense and detract from the value-added manufacturing functions provided by Slow Wing as described above.
Inventory Management Strategy. In his book, Streetwise Project Management, Dobson (2003) advocates the use of a just-in-time inventory management strategy to keep inventories low and manufacturing process more productive. This approach, though, will require close coordination with a Brazilian supplier, warehousing operations, planners and forecasters, and transportation directors throughout the inventory management process. In this regard, Epps (1995) advises, that such an approach requires the efficient transportation of materials from outside vendors directly to the work-in-process area, where the required value added processes of the manufacturing operations take place, which is followed by the shipping of the finished products to the customer within a reasonable timeframe. This inventory management strategy can save manufacturers the costs of inspection, stocking, material handling, inventory tracking, carrying the inventory, and the dangers that are typically related to damage to parts and their tendency to become obsolete over time (Epps).
The just-in-time inventory management strategy has become a performance management technique that endeavors to complete the process right the first time and to avoid any that will detract from the company’s profitability (Epps). According to this analyst, “The time a part is delayed, moved, or inspected is referred to as non-value added time. It is waste time because no value is created for the customer when the product is not being processed. Under the JIT concept activities such as moving parts, waiting for parts, machine setup, and inspection are referred to as non-valued added activities. Inefficiencies in production cause non-value added activities” (Epps, p. 40).
Inbound and Outbound Transportation Strategy. The inbound and outbound transportation strategy to be employed in the company’s secondary operations in Brazil will by necessity need to be supportive of the just-in-time inventory management strategy described above. Fortunately, compared to some of its neighboring countries in South America and the Organisation for Economic Cooperation and Development (OECD) countries, Brazil’s costs and procedures required for importing and exporting a standardized shipment of goods are highly competitive but are slightly higher in some cases than other South American and OECD nations as shown in Table 2 and Figure 2 through 6 below.
Table 2
Costs and Procedures Involved in Importing and Exporting a Standardized Shipment of Goods: Brazil 2009.
Indicator
Brazil
Region
OECD
Documents for export (number)
8
6.9
4.5
Time for export (days)
14
19.7
10.7
Cost to export (U.S.$ per container)
1,240
1,229.8
1,069.1
Documents for import (number)
7
7.4
5.1
Time for import (days)
19
22.3
11.4
Cost to import (U.S.$ per container)
1,275
1,384.3
Figure 1. Documentary Requirements for Exports from Brazil vs. Region and OECD.
Source: Based on tabular data in The World Bank Group, 2009.
Figure 2. Time Required for Exports (Days) from Brazil vs. Region and OECD.
Source: Based on tabular data in The World Bank Group, 2009.
Figure 3. Average Cost to Export (U$ dollars) per Container from Brazil vs. Region and OECD..
Source: Based on tabular data in The World Bank Group, 2009.
Figure 4. Documentary Requirements for Imports from Brazil vs. Region and OECD.
Source: Based on tabular data in The World Bank Group, 2009.
Figure 5. Time Required for Imports from Brazil vs. Region and OECD.
Source: Based on tabular data in The World Bank Group, 2009.
Figure 1. Average Cost to Import (U.S. dollars) per Container Imports from Brazil vs. Region and OECD.
Source: Based on tabular data in The World Bank Group, 2009.
It should also be pointed out that the International Maritime Bureau has issued advisory warnings concerning the territorial and offshore waters in the Atlantic Ocean from Brazil as having a significant risk for piracy and armed robbery against ships; to date a number of commercial vessels have been attacked and hijacked while at anchor as well as when they were underway and their crews robbed and stores or cargoes stolen (Brazil, 2009).
Warehouse/Distribution Center Strategy. Some of the features that Slow Wing would want in a warehousing service in Brazil include the following:
1. Security: controlled access; guard services, fences, surveillance, closed-circuit television; alarm systems.
2. Adequate floor load and ceiling capacities.
3. Weather protection and temperature control.
4. Adequate lighting and sprinkler system.
5. Adequate dock facilities and support equipment.
6. Empty pallet storage facilities and trash disposal area.
Product segregation capabilities (e.g., commodities, food grade, chemical, pharmaceuticals, etc.) (Bolton, 1997).
Outsourcing/3PL Strategy. The company would be well advised to enlist the services of a third-party logistics provider to facilitate the movement of goods into and out of Brazil in support of its secondary operations base envisioned herein. According to a report from Business Wire (2007), “Global manufacturing companies are striving to improve their supply chain efficiencies with improving global trade, diversified geographical operations, and adoption of the outsourcing route. These manufacturing companies require global services, relationships, and technologies that only larger third-party logistics (3PL) firms can provide” (Outsourced 3PL market, p. 1). By outsourcing this function to a Brazilian third-party logistics provider, Slow Wing would benefit by avoiding the pitfalls that will inevitably occur for those unfamiliar with being “on the ground” in a foreign country. The more sophisticated nature of the just-in-time inventory management approach recommended herein will also require close logistics integration that can be provided by outsourcing this function to a knowledgeable third-party logistics provider with experience and expertise in the Brazilian marketplace (Gelinas & Bigras, 2004).
Customer Relationship Management. In the not-too-distant past, customer relationship management was a labor- and time-intensive enterprise that required elaborate record-keeping and data analysis in order to discern meaningful trends and develop timely responses to them. Today, though, innovations in technology have provided companies of all sizes and types with the ability to perform customer relationship management (CRM) operations effectively and efficiently. In this regard, Ragins and Greco (2003) note that, “Emerging technologies offer companies the potential to improve their ability to attract and retain customers, capture more information through the online channel than through any other customer contact point, and practice effective CRM” (p. 25). Such information collected by the secondary operations located in Brazil can be used in a variety of ways by Slow Wing to augment its current CRM function, but it would be important for both headquarters to employ the same or compatible CRM applications for this purpose to help coordinate data analysis and develop appropriate responses to shifts in consumer demand and to identify current and future trends.
. Although the authorities do not provide a universal definition for this term, a useful definition provided by Lummus, Vokura and Krumwiede (2008) indicates that, “Integration is a process of interaction and collaboration in which manufacturing, purchasing, and logistics work together in a cooperative manner to arrive at mutually acceptable outcomes for their organizations” (p. 56). Therefore, the objective of developing an integrated supply chain between the U.S. headquarters of Slow Wing and its secondary operations in Brazil would be to eliminate all constraints to the seamless flow of material, cash, resources, and information needed to achieve our organizational goals and support the just-in-time inventory management approach described above. As Lummus and her associates emphasize, better integrated supply chains result in improved organizational performance.
Performance Management Strategy. According to Lindholm (1999), “Performance management (PM) is a strategic HRM process that enables the multinational corporation to continuously evaluate and improve individual, subsidiary unit, and corporate performance against clearly defined, preset objectives that are directly linked to company strategy” (p. 45). Generally speaking, performance management seeks to emphasize the communication of organizational goals throughout the organization and its suppliers and usually a formal performance evaluation as well as informal performance feedback concerning the progress being made toward organizational objectives (Lindholm).
In an increasingly globalized marketplace, it is not surprising that a growing number of researchers have examined issues such as the impact of national culture on performance management objectives in cross-cultural settings. These cross-cultural differences are referred to as the “psychic distance” that exists between the national cultures of the organizations involved (Evans & Mavondo, 2002). According to these authors, “There is a negative relationship between psychic distance and organizational performance [which] is attributed to the fact that psychically close countries are easier to learn about and understand” (p. 515). The United States and the United Kingdom, for example, share a high congruence of cultural dimensions defined by Hofstede (2009); by sharp contrast, there are some significant incongruities between the national culture of the U.S. And that of Brazil as shown in Figure 1 below that will inevitably increase the psychic distance involved in doing business with Brazilian suppliers and warehousing vendors (definitions and description of the five cultural dimensions are provided at Appendix A).
Figures 1 and 2. Cross-cultural comparison of U.S. And the UK. And U.S. And Brazil.
Key:
Power Distance Index
Individualism
MAS
Masculinity
UAI
LTO
Source: Hofstede, 2009.
Next Steps.
Following approval of the second operations location in Brazil, the following steps should be taken in the order presented:
1. A site visit by a management team from Slow Wing with strategic Brazilians partners. This step is regarded as an essential element in forging working relationships with Brazilian counterparts and can help ensure a smooth transition with minimal interruptions to the supply chain management process. There are some differences involved in doing business in Brazil that should be kept in mind during this site visit. According to one American expatriate with extensive experience in doing business in Brazil, “Remember that doing business IS a type of social interaction in Brazil. People need to get acquainted and comfortable with each other before getting down to business. . . . Remember that Brazilians are very fashion-conscious and follow European styles. You don’t want to look dowdy or unfashionable, so avoid polyester and double-knits” (Thomson, 2009, p. 3).
2. Consultation and coordination with legal counsel in Brazil concerning the documentary and other legal requirements needed to establish and administer the operations envisioned herein.
3. Conduct cross-cultural training for members of the Slow Wing staff in the United States who will be coordinating this initiative; the company should also consider language training in Portuguese for selected members of the management team to facilitate communications.
4. Other steps as identified that result from the foregoing.
Conclusion
The research showed that Brazil represents a viable location for Slow Wing’s envisioned secondary operations initiative based on the country’s status as one of the leading aircraft manufacturers today and its relatively healthy economy compared to most of its neighbors in South America. The country also enjoys extensive and modern port facilities and has a cadre of third-party logistics providers that can facilitate the integration of the company’s supply chain in ways that might not be otherwise possible, at least in the short-term. The selection of Belo Horizonte for the location of the secondary operations was considered a highly appropriate given the city’s current aircraft manufacturing industry and geographic proximity to several port cities. Despite the foregoing advantages and potential benefits from establishing secondary operations in Brazil, the research also showed that there were a number of legal and cross-cultural factors that must be taken into account prior to, during and following the establishment of these operations abroad. Despite these constraints, a number of major U.S. companies have succeeded in establishing operations in Brazil, and it is reasonable to conclude that with some careful planning and foresight, Slow Wing will be able to accomplish this initiative as well.
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Appendix A
Geert Hofstede’s Five Dimensions
[Source: Hofstede, 2009]
Dimension
Description
Power Distance Index (PDI)
This dimension measures the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more vs. less), but defined from below, not from above. It suggests that a society’s level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that ‘all societies are unequal, but some are more unequal than others’.
Individualism (IDV)
This dimension on the one side vs. its opposite, collectivism is the degree to which individuals are integrated into groups. On the individualist side are found societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side are found societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The word ‘collectivism’ in this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world.
Masculinity (MAS)
This dimension vs. its opposite, femininity, refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. The IBM studies revealed that (a) women’s values differ less among societies than men’s values; (b) men’s values from one country to another contain a dimension from very assertive and competitive and maximally different from women’s values on the one side, to modest and caring and similar to women’s values on the other. The assertive pole has been called ‘masculine’ and the modest, caring pole ‘feminine’. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men’s values and women’s values.
Uncertainty Avoidance Index (UAI)
This dimensions deals with a society’s tolerance for uncertainty and ambiguity; it ultimately refers to man’s search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, and different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; ‘there can only be one Truth and we have it’. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions.
Long-Term Orientation (LTO)
This dimension vs. short-term orientation is the fifth dimension found in a study among students in 23 countries around the world, using a questionnaire designed by Chinese scholars This dimension deals with Virtue regardless of Truth. Values associated with Long-Term Orientation are thrift and perseverance; values associated with Short-Term Orientation are respect for tradition, fulfilling social obligations, and protecting one’s ‘face’. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 BC; however, the dimension also applies to countries without a Confucian heritage.
Appendix B
Map of Brazil
