Global Supply Chain: Complexities, Risks and Opportunities - Essay Example

Global Supply Chain: Complexities, Risks and Opportunities Student’s Name Institutional Affiliation Course Name Date of Submission Global Supply Chain: Complexities, Risks and Opportunities Introduction The increased globalization of the economies and market has resulted in increased complexity of the global supply chain. Having a properly working supply chain is critical for the success of a business since it ensures efficient movement of products and services as well as information. Accordingly, this results in reduced cost, customer satisfaction and competitiveness. Supply chain complexity, however, has serious negative impacts on an organization, including increased costs, delays in delivery of products and services, customer dissatisfaction, inventory shortage or excess, as well as lack of corporation among supply chain participants (Deshmukh et al. 1998, p. 647). Therefore, effective supply chain management (SCM) has become very critical to ensure that the complexities are identified and appropriate action taken to minimize the risks associated with the complexities. The aim of this report is to discuss the major complexities associated with global logistics, as well as the risk factors and opportunities. Complexities in International Supply Chain Globalization of markets has come with many opportunities for companies, including opening up new markets for companies. However, its impact on supply chain has become a focal point of focus in the recent time. This is attributed to the increased complexity of the supply chain resulting from globalization. Wilding (1998, p. 599) shows that the global logistics has become more complex than ever before. Therefore, it has become very important for managers to understand the complexities in the global supply chain and manage them effectively. Failure to manage the complexities can prove detrimental to a company since it can result in delayed deliveries, inventory shortage, customer dissatisfaction and lack of competitiveness. The global supply chain has become more complex due to a various reasons. Firstly, the complexity of the supply chain is attributed to the increased fragmentation of the distribution channels. Milgate (2001, p. 108) shows that the distribution channels have become highly fragmented. Today, with the globalization of markets, companies are forced to source for supplies from many different suppliers in different countries across the globe. For instance, manufacturers are currently forced to manage multiple product lines that are assembled from parts obtained from different suppliers. The parts obtained might also need sub-assembly by different suppliers, thereby creating confusion and complexity in the supply chain (San 2000). For instance, Volkswagen is said to have more than 500 suppliers of raw materials from different countries. This implies that Volkswagen has to manage all these suppliers, which is very challenging and confusing. Increased product variation is also a major cause of global supply chain. Poole (2013) study shows that there has been a huge increase in product variation in the recent past due to globalization. The increase in variations manifest in the form of components, processes, production, labeling, packaging and shipping requirements (Deshmukh et al. 1998, p. 649). This variation in products has resulted in complexity not only in the global procurement, but also to the life cycle of the product. The increases in product variations are causing a major challenge to the global supply chain since it not only trigger an increase in the supply cost, but also an increase in product development cost. Additionally, the increased variations of the products also cause a major challenge to global logistics in the sense that it causes an increase in order taking and errors in fulfillment. Thirdly, the complexity of the global supply chain consumer demand for customized solutions (Poole 2013). The principle aim of supply chain managers is to ensure that the needs of customers are satisfied through the provision of quality products and services at the right time. However, most supply chain managers presently face a huge challenge in meeting the needs of customers. The challenge arises from the fact that customer expectations have changed. Studies show that customers of today require customized products and services (Savitz 2012). This implies that a company has to ensure that the products procured and manufactured are customized to meet the needs of each customer. However, this cause complexity in global supply chains considering that a company deals with many customers with different needs. Therefore, to fulfill the needs of all customer requirements, supply chain managers must understand the needs of each customer, which is a challenging endeavor. Possible Risks Associated With International Logistics Business Globalization has brought many benefits to companies, particularly to purchasing companies. Globalization has made it possible for companies to source for materials from different parts of the world. Today, there is an increased trend of companies taking advantage of globalization and technological advancements to source for materials from low cost countries. For instance, many manufacturing companies are increasing moving to BRICS nation as the ideal places to source their materials (Deshmukh et al. 1998, p. 651). This is because of the low cost of materials and labor in these countries. Nevertheless, there are many risks in the global supply chain that purchasing managers should understand and manage the risk to ensure that the risks are reduced to manageable level. The first major risk faced by global logistics has to do with currency volatility. When operating globally, logistics companies have to keep buying products and services from different countries that involve currency exchange. However, the currency exchange rates keep changing due to economic volatility. Accordingly, the volatility of the currencies makes it difficult for global logistics executives to determine with certainty the prices of the products they purchase from a country (Poole 2013). For instance, the U.S. dollar has been strengthening in the recent past against other major world currencies. By contrast, the Chinese currency has been falling recently due to economic recession. Such persisted currency exchange fluctuations affect the decisions made by logistics managers. In fact, it has been noted that the currency rate fluctuation pose a huge challenge to global logistics in the sense that it can cause a change in the selection of supplier, inventory levels and transport modes. However, whenever such changes are made, this might affect the product quality, prices, and delivery time and customer satisfaction. The second major risk has to do with cross-border issues arising from political risks (Savitz 2012). With globalization, global logistics companies source materials from different countries. This implies that materials have to be transported across borders. However, conflicts between different countries or in a country from which the materials are being source sometimes pose a risk to global logistics business. This is because it makes it difficult for a global logistics business to obtain materials at the right, quantity and condition. For instance, the ongoing political issues in Yemen, West Bank and Syria pose a huge risk to global logistic businesses that source materials from these countries or whose materials pass through the airspace of these countries. Accordingly, this might result in a difficult in obtaining materials supplies or cause delays in sourcing materials when there is a cross-border issue. Additionally, cultural sensitivity is a risk that most global logistics companies face when procuring products and services across borders. Each country has people with their unique ways of doing business. For instance, in order for a global logistics company based in Australia to procure raw materials from China, the company must ensure that it abides by the Chinese culture of doing business, including language, etiquette, and values. However, this poses a huge challenge to most global logistics companies due to lack of expertise to manage the cultural differences. According to Isik (2011, p. 45) , it is risky for global logistics businesses to assume that the rest of the world is similar to their part of the world, such that the things that happen in their world will work in other parts of the world. As such, logistics professional that fail to focus on cultural differences could end up making serious mistake that could make suppliers in other parts of the world resist doing business with the global logistics company. Opportunities That Arise From International Logistics Despite there being many issues in global logistics, there are also numerous opportunities that arise in global logistics. The identification of the opportunities and exploiting them is very critical since it can give a global logistics company a competitive advantage over others in the industry. The first major opportunity available for global logistics businesses is low cost sourcing. Low cost sourcing is a goal for most global logistics companies. This is because the aim of global logistics companies is to increase revenue. However, this is only possible if the sourcing cost for components, labor and expertise is low. Fortunately, there are has been a growing number of low-cost countries from which global logistics companies can source for components, labor and expertise (Blecker and Kersten 2006, p. 20). The BRICS nations, in particular still provide low cost opportunities for global logistics companies. Today, many manufacturing companies are moving to BRICS nations, including China, Brazil, Russia and South Africa because of the low sourcing cost for components, labor and expertise (Isik 2011, p. 46). Therefore, for a global logistics business to succeed in today’s complex supply chain, it must consider taking advantage of the opportunities offered through low cost sourcing. The second opportunity has to do with increased markets. Globalization of economies offer global logistics companies a great opportunity to source for components from many different countries across the globe. Unlike in the past where logistics managers were restricted to sourcing materials, labor and expertise from the domestic market, the globalization of the logistics has resulted in an increase in the markets from which a firm can source products and services. IBM Company, for instance, has several suppliers of its products. These suppliers come from different parts of the world (Iyer 2011, p. 24). The growth in markets offer great opportunity for global logistics firms in the sense that it provides the firms with a wide choice of suppliers. Accordingly, this ensures that Logistics Company provides value to customer by sourcing only from reliable suppliers that provide quality products. The Management of IBM says that having many suppliers has helped ensure that the company does not run short of supplies, thereby ensuring that its operations is not affected and that customers are provided with quality products at the right time, quantity and condition (Closs 2011). Additionally, outsourcing is another opportunity available for global logistics companies. With the advancements in technologies, global companies currently have great opportunity to reduce cost and ensure value creation to customers through outsourcing (Blecker and Kersten 2006, p. 22). In fact, there has been a huge rise in outsourcing companies that specialize in the provision of logistic services to companies. FedEx is a classical example of UK Company that provides outsourcing services to companies. Like many other companies that provide logistics outsourcing services, FedEx has a team of logistics professionals that ensures that its clients get value for money by sourcing for products, labor and expertise. Accordingly, the growth in outsourcing logistics services providers is a great opportunity for global logistics businesses since it ensures well coordination of logistical services at low cost, as well as ensuring high customer satisfaction. Conclusion Globalization is one of the greatest events that happen in the recent past. It greatest impact has particularly been experienced in the business environment, where it has opened up numerous business opportunities for businesses. Globalization has had huge impact even in the logistics businesses. In particular, globalization has made international logistics become very complex. The complexity of global logistics manifests in three different ways, including fragmented channels, increased product variations and increased demand for customized solutions by customers. In addition to the complexity of the global logistics, international logistics businesses face a number of risks that they need to confront and manage to ensure the provision of customer value. These include volatility of currency exchange rates, cross-border issues, and cultural sensitivity among others. Despite all these challenges, global logistics businesses are presented with numerous opportunities that if exploited effectively can result in success and competitiveness. The opportunities include availability of low cost sourcing, increased markets and emergence of outsourcing opportunities. References Blecker, T., & Kersten, W 2006, Complexity management in supply chains: Concepts, tools and methods. Erich Schmidt Verlag GmbH & Co KG, New York, NY. Closs, D. J 2011, Forgotten keys to enhanced global operations, accessed 27 October 2015 http://www.logisticsquarterly.com/issues/12-2/article1.html Deshmukh, A.V., Talavage, J. J., & Barash, M. M 1998, Complexity in manufacturing systems. Part 1: analysis of static complexity. IIE Transactions, vol. 30, no. 7, pp. 645–655. Isik, F 2011, Complexity in supply chains: A new approachto quantitative measurement of the supply-chain-complexity. INTECH Open Access Publisher, London. Iyer, A 2011, Orchestrating supply chain opportunities. Business Expert Press, New York, NY. Milgate, M 2001, “Supply chain complexity and delivery performance: an international exploratory study.” Supply Chain Management: An International Journal, vol. 6, no 3, pp. 106–118. Poole, A. R 2013, Study shows global logistics is becoming more complex; nine key trends, strategies identified, accessed 27 October 2015 http://poole.ncsu.edu/index-exp.php/news/article/study-shows-global-logistics-is-becoming-more-complex-nine-key-trends-strat/ San, W. J 2000, China's fragmented distribution channels drive strong solutions demand, accessed 27 October 2015 http://info.hktdc.com/shippers/vol30_4/vol30_4_logistics09.htm Savitz, E 2012, Managing the risks of a globalized supply chain. Forbes, October 4essed 27 October 2015 http://www.forbes.com/sites/ciocentral/2012/10/04/managing-the-risks-of-a-globalized-supply-chain/ Wilding, R 1998, “The supply chain complexity triangle: uncertainty generation in the supply chain.” International Journal of Physical Distribution and Logistics Management, vol. 28, no. 8, pp. 599–616. Read More