The business environment is ever-changing, forcing management to be responsive. One area of concern is the supply chain management. Effective supply chain management should strive to cut costs, prevent overproduction, and minimize wastes. Presently, supply chains are growing in complexity (Wiengarten et al., 2016). Customers are demanding innovative, high-quality products timely and at relatively low prices. These customers are spread all over the globe with the availability of online stores. Such demands create challenges for businesses because attaining cost-effective and responsive supply chains is critical. In an attempt to reduce costs in the supply chain and many firms have resorted to globalization (Fujita & Thisse, 2006; Johnson, 2006; Wiengarten et al., 2016). Businesses which used to produce domestically and sell internationally are shifting to seeking raw materials globally and selling the finished products into a defined market. Globalization has been promoted with reduced barriers to foreign trade, ease of flow of information, enabling technologies, among other promoting factors (Wiengarten et al., 2016). However, globalization comes with a lot of risks and challenges. This paper discusses some of the risks and challenges associated with globalization in supply chains. It also provides strategies to overcome these risks and challenges.
Risks and Challenges of Globalization
Although globalization comes with many benefits among them connectivity, an opportunity for growth, and integration, there are several challenges and risks associated with it. Ensuring a successful globalized supply chain requires avoiding timing, distance, language and quality problems (Wiengarten et al., 2016). The following paragraphs discuss some of the risks, challenges and issues associated with globalization.
More Channels, Increased Risk and Less Predictability
When a business chooses to operate global supply chains, they are more exposed to the risks of external factors such as natural calamities, economic recessions and political uprisings in those regions. For instance, gas companies in the Middle East would found it hard to access petrol and oil in case of political uprisings in the region. The limited access would lead to gas prices going up as supply drops. Besides, increased risks, foreign markets are subject to less predictability. At one time they might call for more abundant supplies and other smaller supplies. Also, there is an issue of currency fluctuations when dealing with customers and suppliers overseas. Companies face a significant challenge in planning for foreign exchange variations, which are not predictable. The uncertainty in market trends makes it difficult in market analysis and coordination of supply chains. When deciding to operate globally, these are some factors to consider.
Accountability and Compliance
When deciding on global sourcing, companies are expected to adhere to social, political and economic compliance, which come at a cost. These companies need to conduct themselves with diligence concerning working conditions, fair compensation practices, among others. If they fail to comply with the local standards, they risk ruining their brand image as they might legal and ethical implications.
Defects and Quality Levels
There is a need to comply with international standards and regulations. Export and import restrictions, packing, labelling and safety regulations vary around the world. Therefore, checking to ensure the materials provided by foreign suppliers, new to international trade, meet all the domestic entry regulations can become a daunting exercise. Also, since manufacturing or production processes are not perfect, different industries have different acceptable quality levels for products. Unfamiliar markets may not adhere to acceptable defects levels in the home markets. For instance, when a company chooses sourcing from the non-US firm, disputes and questions regarding which party is accountable for any defects above the acceptable levels arise.
Long-Range Logistics and Delays
It is crucial to have firm shipping timeframes and completion dates. However, long-distance logistics give room for shipment delays. For globally sourced materials, delays may arise from transit problems or factory hold-up. Delays slow down production while driving up related costs. Therefore, ignoring the complexity of long-range logistics is not suitable for any global supply chain.
Identifying Reliable International Business Partners
With business partners, customers, distributors and suppliers located overseas, it becomes difficult to monitor business operations in these regions, hence a need for trusted and reliable partners. The stability of the company relies on these players. When a company fails to identify trustworthy and reliable partners, intellectual property protection might be difficult, especially if such regions have less stringent laws regulating intellectual property protection. Identifying suitable insurance for protecting shipments and the foreign property is essential yet challenging.
Although this is not a significant area of concern, it is an important aspect when deciding to operate globally. For instance, when directions are communicated in English and translation is required, some words are left out, which might distort the intended message. Mistakes are bound to happen when communications are not interpreted correctly.
Strategies to Mitigate the Risks and Challenges
Companies seeking to create competitive advantage from the global supply chains need to build teams to address and mitigate the above risks, among others. Identifying the risks before they happen can be vital for success in global sourcing. Supply chain risk management should involve three steps:
- Identifying the sources of potential disruptions and assessing the vulnerabilities in the supply chain.
- Assessing the impact of the potential risk and quantify it.
- Developing plans and measures to mitigate the potential risks or creating strategies to minimize the impact depending on the nature of the risks.
The following strategies are necessary for improving risk management in global supply chains.
Increasing Risk Visibility and Awareness
The management should ensure that discussions, KPIs and reports on risks in the global markets are communicated regularly to key players in the supply chain. These risks and challenges should be mapped, with alternatives being suggested for each risk and challenge. This should also include supply tactics and strategies, even at a time when no threats are being reported.
Improving Supply Chain Partner Relationships
The management should be determined to enhance positive relationships with various players in the supply chain, sharing information flow metrics and measures. Every player feels valued.
Education and Training
The management should conduct scheduled training on supply chain risks. The education should facilitate developing best practices for risk management (pre and post risk exposure agility and readiness) and attaining an optimal balance in the supply chain.
This paper has established that although globalization of the supply chain comes with a lot of benefits, there are many issues, risks and challenges associated with it. Some of them include less predictability, long-range logistics and delays, variations in defects and quality levels, identifying reliable international business partners, language barriers and the question of accountability and compliance. The paper has provided recommendations on the best practices for risk management, among them education and training, increasing risk visibility and awareness and improving supply chain partner relationships.
APICS Supply Chain Council. (2011). Supply chain risk challenges and practices. Retrieved from: http://www.apics.org/docs/default-source/default-document-library/supply-chain-risk-challenges-and-practices.pdf?sfvrsn=0
Fujita, M., & Thisse, J. F. (2006). Globalization and the evolution of the supply chain: who gains and who loses? International Economic Review, 47(3), 811-836. Retrieved from: DOI: 10.1111/j.1468-2354.2006. 00397. x
Johnson, M. E. (2006). Supply chain management: Technology, globalization, and policy at a crossroads. Interfaces, 36(3), 191-193. DOI: 10.1287/inte.1060.0214
Wiengarten, F., Humphreys, P., Gimenez, C., & McIvor, R. (2016). Risk, risk management practices, and the success of supply chain integration. International Journal of Production Economics, 171, 361-370. Retrieved from: https://www.sciencedirect.com/science/article/pii/S0925527315000882
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Maximizing Efficiency in a Changing Business Environment: The Benefits of Effective Supply Chain Management. (2023, Feb 12). Retrieved from https://proessays.net/essays/maximizing-efficiency-in-a-changing-business-environment-the-benefits-of-effective-supply-chain-management
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