Challenges in a Global Supply Chain

Businesses and supply chains have become substantial global over the last decade. Between 1995 and 2007, the number of transnational companies has more than doubled from 38,000 to 79,000 and foreign subsidiaries have nearly tripled, from 265,000 to 790,000. (Ref: IBM report “the smarter supply chain of the future”)

In addition to spreading geographically, supply chains now involve more companies. Nearly 80% of executives surveyed said they expect the number of collaborative relationships with third parties to increase. And ever broader range of activities is being outsourced: (Ref IBM report “the smarter supply chain of the future”)

There is no single definition of a “global” supply chain but as the traditional definition states it is a network of organisations involved through the upstream and downstream linkages, in the different processes and activities that produce value in the form of products or services in the hands of the ultimate consumer.

Globalisation has fuelled the new global supply chain and defines the network as being global.

If we consider the well know Barbie doll, Barbie, originally made in Japan but today different parts are made in various countries, hair made in Japan, plastic body comes from Taiwan, cotton clothing from china and mounds and pigments from the USA.

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If we add the logistics and assembly as well as supporting activities it’s obvious that a global supply chain faces many challenges in fulfilling customer needs and demands.

Challenges of complexity

Christopher (2011) identifies 8 sources of complexity in the supply chain; we briefly mention key complexities that lead to challenges in the global supply chain.

In a global supply chain or network companies through their adopted strategies have indentified core and non core activities and in most cases they have outsourced noncore activities. This has elongated the supply chain and increased the interdependency across the network. This has created a more complex supply chain where actions or unforeseen events can cause disruption and create challenges. The focal company depends on suppliers several tiers away some of which they may have no knowledge of. Dell for example only realised following an earthquake in Taiwan in 1999 that one of their indirect suppliers supplied many millions dollars worth of chips.

Process complexity within the supply chain have also created challenges , Proctor and Gamble suffered delays in their Tide Pods detergent due to “new –to- the- world manufacturing processes”.

Range complexity has increased due to need of variants to satisfy demand; this in turn has lead to more difficult forecasting and has created lower volume demand.

Product complexity continues to cause challenges due to the number of components or sub components and the lack of commonality across the bill of materials. This has led to less flexibility to vary product mix or volume.

Supplier complexity, as discussed above Global supply chains have become elongated with more suppliers involved in the creation and delivery of a product, this creates more relationships to be managed and some that cannot, there is a challenge in the integration of the links in the chain. Issues such as the type of relationship the focal company should have.

Organisational complexity is created with the need for functions, teams and organisations to operate in a cross functional manner to improve efficiencies and reduce costs, if we consider that global supply chains must operate across time zones and different cultures it creates further challenges. Global supply chains are dependent on the flows of information unfortunately this can also cause challenges such as a lack of visibility in the supply chain, incorrect forecasting and language barriers. It’s vital to insure transparency exists in all communication within the supply chain. One of the biggest challenges in today global supply chain is the integration of the supply partners to eliminate waste, add value, and fulfil demand in a timely and cost efficient way.

Visibility

An increasing challenge in a global supply chain is the lack of visibility. Many studies believe this is becoming a major factor as the demand for products becomes more volatile.

Supply chain managers cannot accurately tell what and how much inventory is in the pipeline, what stage it is at and will it meet its shipping deadlines. This has resulted in larger inventories, poor use of finance as the cash to cash cycle can not accurately be forecasted which increase cost and leads to many inefficiencies. Inventory levels remain a challenge in the supply chain “vendor holding” is a helpful way in which to create a more effective supply chain.

Knowing what’s in the product pipeline in real times allows a company to react to changes in supply and demand. RIFD is a tool that has enabled more control and visibility of material and inventory. In addition it allowed the condition of goods to be monitored such as temperature and humidity. Security has also been vastly improved and risk reduced as location in real time of the product or shipment can be identified.

Logistics & Operational challenges

Corporate managers need to choose locations for operations carefully ensuring that the supply chain can meet demand effectively and efficiently. The challenge is to supply that local market while at the same time optimising the global supply network to achieve cost reduction, reduced risk and competitive advantage, When production and distribution is located around the world the supply chain is going 24/7 problems occur around the clock and solutions are required.

This is focusing the need for visibility as mentioned but also highlights the need for an effective logistics solution. Challenges such as co ordination of components to manufacturing plants and onwards to distribution centres can be improved by choosing a effective logistics partner. Some companies have decided to locate their manufacturing plants in the same area of their raw material such as for example food producer Del Monte located in Thailand due to its abundant source of pineapples.

The movement of components and products across a global supply chain is faced with time challenges apart from the obvious long shipping times it can also face the delays due to custom clearance or delays in compliance checks and clearance. Costs can also rise due to trade tariffs and compliance preparation. These challenges force organisations to examine end to end supply chain issues in order to create the most suitable strategy.

As described earlier we can see through the Barbie example that global supply chains are dependent on products, materials and services from right across the world coming together to complete a finished product.

Risk

Today’s market place is characterised by turbulence and uncertainty. (Christopher) Some examples of these challenges were experienced by Airbus when its supply chain was disrupted by the ash cloud. It announced it was days away from closing its production due to parts not being delivered. Political risk as seen in Libya increased oil prices.

A number of factors have added to these risks , demand has become volatile, product and technology cycles have shortened. The global supply chain is also susceptible to disruption caused by natural disasters as we have seen with ash cloud affected Airbus, earthquake affected Dell and the most recent tsunami to hit Japan.

Risk can severely damage the financial position of the organisation such as share price. Supply risk is a challenge as companies compete for commodities, knowing when and how to deal with this will reduce risk. Quality issues in term of either components or finished product can cause huge risks as we have seen with the Toyota recall of its cars due to safety issues.

Mattel the world’s biggest toymaker suffered bad publicity and the cost of millions of dollars worth of recalls when it found potentially dangerous levels of lead paint used on some of its toys made by their Chinese manufacturer. Risks can become reality, the challenge for supply chain mangers is to understand the risks and estimate the probability and based on findings adjust strategy and ensure a plan exists.

Inventory is also susceptible to risk in the form of obsolesce, cost of storage and security. Apple have lost some control by outsourcing many of their manufacturing as have Nike but both have gained from more flexibility and also reduced. This has helped them manage risk effectively.

Conclusion

A global supply chain has to act global but think local as not all markets are homogenous. People talent and the use of technology is a key to addressing the challenges both on a local and global basis. The supply chain is now driven by demand and this is decided by the customer who dictates what is produced and when it is required. The challenge for suppliers is to develop an integrated network where all companies within that network act in a way that is consistent on fulfilling customer requirements.

When a organisation becomes a truly global supply chain it seeks to gain many new opportunities for growth while optimising the global supply chain through global advantage. The global supply challenges will change and so too must the organisation be willing to adjust to meet these challenges.