What is Global Supply Chain?
- A global supply chain is made up of the interrelated organizations, resources, and processes that create and deliver products and services to end customers. In the instance of global supply chains, it is extended around the world
- Any company that uses parts and services from another factory overseas faces issues with global supply chain management.
Rational and key strategies
- Globalization has offered tremendous opportunity as well as increased risk in the development of supply chain.
Global supply chain strategies are:
Sourcing
A typical question raised is whether to source goods internationally or domestically. In most instances sourcing internationally from low-cost manufacturing countries appears to provide the lowest price. However, when variability from lead time of long, global supply chains becomes too volatile and appears to significantly affect service levels with potential stock outs, the domestic sourcing option looks less risky.
Distribution
Challenging the basic global supply chain distribution network can be, well, a challenge. When companies focus on optimizing their networks for substantial cost and time savings, they are forced to widen their analysis outside of their own organization’s network. The optimal result would increase control, visibility, on-time delivery while decreasing costs.
Factors in Global Supply Chain
- Substantial geographic distances
- Foreign market forecasting difficulties
- Exchange rate fluctuations
- Infrastructural inadequacies
- Explosion in product variety in global markets
Requirements of Globalization
- Coordinating the flow of materials, information and finance through each of the components in the supply chain, however, involves many challenges.
- With global supply chains, the level of uncertainty increases with each additional market that is involved.
- Political actions in another country can have dramatic effects on the supply chain; natural disasters might have a major impact on shipping and transportation; and wars, labour strikes, or civil unrest can result in low productivity.
- Currency fluctuations:
- When dealing with suppliers or customers overseas, companies must plan for fluctuating charges and income from foreign exchange rate variations.
- Maintaining intellectual property protection:
- A company might be able to have a product assembled overseas more cost effectively than assembling it domestically. However, some countries have less stringent laws regulating protection of intellectual property.
- Identifying and assuring the reliability of international business partners:
- With suppliers, distributors, customers and business partners located in many regional areas of the world, it can be difficult for companies to monitor the business practices and financial stability of all organizations in the supply chain.
Challenges of Globalization
The key challenges created by globalization’s impact on supply chain performance include:
- Increased lead times.
- As supply chain networks are extended globally, the number of blind spots and lead times increases. Longer lead times directly affect inventory in transit and at distribution centers/hubs, as well as supply risk, financial risk and total cost of goods. Blind spots and poor visibility make it difficult, if not impossible, for companies to address issues before it is too late.
- Inventory management.
- Extending an existing supply chain to meet globalization’s requirements adds supply chain nodes and touch points, each of which involves yet another inventory location. New manufacturing locations, supplier sources and consumer markets added to the supply network require enterprises to re-engineer their networks.
- Increasing total cost.
- Supply chain business models can range from an enterprise owning the entire process to managing only the brand and outsourcing the rest of the business functions (design, manufacturing and delivery) to third parties. The trend with globalization is to outsource more while owning fewer processes.
Potential Hidden Costs
- Manufacturing companies realize “sourcing” in China, India, Mexico and Eastern Europe can lower production costs significantly, by as much as 75 percent in some cases. It also gives Western companies access to rapidly growing local markets. So the case for globalization is clear.
- But sourcing from low-cost countries also has costs, which many companies underestimate. In fairness, getting the math right can be a challenge, since some costs are not apparent and can add up quickly. So the worst thing a business can do is rush into global expansion without realizing how much economic quicksand may lie under the surface.
Total Cost Strategy
- Integrating global sourcing into the overall business strategy to obtain a low-cost advantage.
- Buy the product from other country if they can provide the product cheaper than actually it was manufactured in the country.
- Contributed by: Offshore Outsourcing
Total Costs Includes
- Low labor cost
- Diminishing importance (Costs underestimated, benefits overestimated)
- Other cost priorities
- Integrated supplier infrastructure (as suppliers become more involved in design)
- Skilled labor
- Capital intensive facilities
- tax breaks
- joint ventures
- price breaks
- cost sharing
- Exchange rate fluctuations and operating flexibility
Various facilities under total cost strategy
- Off-Shore facility
- Primary focus is on supplying products to foreign markets. More focus on supply and production is minor focus
- Minor exports focused
- Source facility
- Source of production in the host country. More focused on global production.
- Motive is to reduce import export and instead produce the products itself in the host country with a proper location
- Server facility
- Partenered with a local producer to serve the local market in the best possible way and
- Contributor facility
- Outpost facility
- Lead facility