The Dual Effects of Globalization on Operations and Supply Chain Management - Term Paper Example

The dual effects of globalization on operations and supply chain management Introduction This essay focuses on the double impact of globalization on operations and supply chain management and considers such as not only an important issue but one whose consequences are of international proportions. Specifically, the essay aims to understand whether globalization hinders or facilitates the operations management of supply chain networks. Applied Biosystems serves as a case in point so that the effects of globalization on a company’s global supply chain management (SCM) are clearly presented to readers and future researchers. On the first part, the positive and negative implications of globalization are taken into consideration, along with corresponding opportunities and challenges. Secondly, pertinent facts are integrated to see how Applied Biosystems benefited from and was hindered by globalization. Globalization – overview and definition Globalization is a broad concept that incorporates economic, political and cultural dimensions in its definition. The main gist behind it is the consolidation of the world into a flat space, where almost any information and goods and services are accessible. Western ideologies on free market capitalism, or the optimizing of resources allocation worldwide, as well as the “Internet Revolution” have all been explained in the context of globalization (Xu, 2001, p.4; Scheuerman, 2006). It is certainly hard to trace the history of a phenomenon such as globalization. Though the contemporary perception always connects globalization with the emergence of the internet in the 1990s, as much as evidence is concerned, its origins date back to the ancient civilizations in Mesopotamia, Egypt, Greece, China, and Indus Valley (Ervin & Smith, 2008, p.7). As an idea, however, it is more recent and the earliest literatures hinting at the subject began during the 1800s Industrial Revolution. To date the most dominant idea associated with globalization is deterritorialization, under which an increasingly diverse range of social activities transpire regardless of the participants’ geographical location. Jon Aart Scholte (2000) redefines this idea as "transborder exchanges without distance" (49). In sum, globalization is simply a phenomenon that “contains far-reaching implications” on just about every component of human life (Scheuerman, 2006). These far-reaching implications thus create difficulties in outlining global exchanges as completely harmful or completely helpful. Both critics and supporters of globalization, especially in the realm of economics, tend to weigh the pros and cons of joining the global bandwagon and if doing so entails costs that far exceed their expected benefits. A Globalization and the supply chain “Globalization has become a major environmental force shaping management theory and practice in recent years.” The proliferation of democratic ideals following the fall of many communist states in the 90s intensified globalization’s role in determining policies and behaviors of nation-states and corporate entities around the globe (Rao, 2001, p.xiii). Because of globalization, “business today is in a global environment.” Globalization trends have been responsible for bringing about privatization and trade liberalization, the ideas and practices of which have compelled corporate management to operate in the global context. This economic phenomenon has a mark influence on all aspects of management practice (i.e. production, product development, marketing, financing, and human resource management). Notwithstanding location or primary market base, today’s globalized business environment requires that companies include the entire world in the scope of their “competitive strategy analysis.” The presumption is that a company will stagnate if respective businesses fail to compete internationally (Indian Institute of Material Management, n.d.; Rao, 2001, p.xiii). How globalization hinders operations and supply chain management is scrutinized in the next section. The negative side of globalization There is so much at stake when companies join the bandwagon of globalization. These hindering factors can be grouped into the following: 1. Money, time and resources 2. Operational complexities 3. Cultural factors 4. Outsourcing problems 5. External factors: market instability, unfair trade agreements, problematic transportation and distribution systems 6. Exposure to harm and disaster in the international market Money, time and resources Globalizing operations and SCM needs intense investments on money, time and resources, which are necessary to execute and supervise the supply chain. Such investments handicap a company with no existing capital or extra cash flow to back up the endeavor. Problems of integrating or designing the supply chain and “choosing the right suppliers” could then arise. Companies also face the dilemma of price and quality considerations, as well as guarantee the cooperation of all willing organizations so that the group will benefit (Thornton, n.d.). Operational complexities Furthermore, even with enough “money, time and resources,” as individual economies have increasingly and rapidly merged to form a global economy for the past decades, many supply chains are heading towards the same direction. Production and consumption of goods now occur in more than one geographical area. For instance, a single product may be developed in France but contain parts manufactured from China, Japan, and America. Though this suggests economic cooperation among the countries, such a production system often results to a long and complicated network of supply chains, which requires strategic changes in the supply chain management (Teigen, 1997). This indicates that one of globalization’s biggest setbacks is causing companies to struggle with “operational complexities,” where they have to select the appropriate “product mix, supply sources and network facilities” that will enable them to penetrate and cater to geographically scattered, and economically and culturally diverse markets (Cavinato, Flynn & Kauffman, 2006, p.21). Cultural factors Another of globalization’s setbacks relates to market diversity. Indeed there are certain infrastructural and, more importantly, “cultural peculiarities of individual national markets.” Because “different countries speak different languages, and [practice] different customs, beliefs, and cultures,” these pose difficult managerial problems for companies with global supply chains (Rao, 2001, p.xiii; Spinney, 2002). The convergence of individual economies significantly affects race and identity. Thus, corporate management nowadays needs to address two paradoxical sides of the coin at the same time: firstly, “the persistent diversity” and secondly, “the converging commonality” (Rao, 2001, p.xiii). Outsourcing problems Globalizing supply chains also entails the outsourcing of some operations to companies with access to cheap but highly productive labor. Outsourcing a production facility or put up a call center lowers the cost of business transactions for companies using global SCM. However, this often leads to “backlash” or heavy reactions from present and future consumers which can significantly affect the whole supply chain (i.e. issues on abusing the human capital of other countries or wrong labor practices such as child labor and unfair wages). Moreover, majority of companies that outsource globally undergo a loss of control over key processes (i.e. “order promising” and “inventory liability”) for which they are still held responsible (Thornton, n.d.; Littleson, 2008). External factors First and foremost, Market instability is an important issue in the global supply chain because intense competition among foreign markets often drives companies “to customize their operations for each country.” The outcome is a diverse range of more complex and differentiated products, but ironically, diversity shortens product life cycles. The now sets the stage for market instability (Indian Institute of Material Management, n.d.). Secondly, a number of trade agreements only benefit member nations and exclude non-member nations from their coverage. The irony is that many non-members pay large tariffs for their exports and such can add to the burden of supply chain costs and cycle times. Lastly, globalizing SCM and operations means dealing with “inefficient and undersized transportation and distribution systems in new markets.” This will be a hindrance to firms with no “capacity or equipment” to transfer or conduct large supplies necessary in business engagements (Spinney, 2002). The modern supply chain needs a “new breed of transportation management solution… [to] support multiple modes and many languages at a reasonable cost” (Cannaughton cited in CMS GlobalSoft, 2008, p.4). Exposure to harm and disaster Companies that expand into foreign markets, embark on global sourcing, and reduce supplier base can have enormous benefits on one hand, but simultaneously create weak spots on the other. Outside the comfort zone of their own economies, companies that globalize their operations and management expose themselves to further harm and disaster. While strategic supply partnerships and various manufacturing locations produce economies of scale, they also “increase the potential impact of disruption, with few or no readily available back-ups or substitutes” (i.e. getting hit with unexpected or unreasonable currency devaluations in the foreign countries where a multinational firm operates). Interconnected systems also mean that disruptions spread through nations at an equally fast rate (Cavinato, Flynn & Kauffman, 2006, p.23; Indian Institute of Material Management, n.d.; Boyer & Verma, 2010, p.510). Yet despite its downsides, globalization has helped companies as the next section explains. The benefits of globalization Advocates of globalization are convinced that it is the best way to attain financial growth, specialize in goods and services, efficiently allocate resources, have greater access to technology, enter cheap labor markets, and increase living standards. They also believe that eroding national identities, political borders, multinational organizations and international events are affecting economic performance to a significant degree (Bizcovering, 2007). Some of the few but vital advantages of globalization include: 1. Internal and external diversity 2. Cooperation 3. Mobilize companies’ untapped potentials 4. More opportunities for growth Diversity Diversity is one of the key benefits of globalization. Looking at it in another angle, one could see that it is advantageous to the business and trading interests of globalizing firms. Internally, a diverse workforce that is considerate towards gender, race, age and religion can better understand and survive in a particular market compared to a homogeneous one (Robinson, Pfeffer & Buccigrossi, 2003, p.2). Global SCMs can therefore gain additional benefits from outsourcing. Externally, the product diversity brought about by globalization will give more choices to consumers, and although critics say this shortens product life cycle, on a positive note, this may also result to higher consumer satisfaction and patronage. Individualized customer satisfaction, in turn, is a company’s competitive advantage (Millet cited in Fahey & Randall, 1998, p.293). Cooperation Globalization has fostered a great deal of cooperation and teamwork as more companies have banded together so as to merge distribution, shipping, warehousing, and many other operations. This helps businesses from different points of origin create strong ties with each other and perhaps a support system that will buffer a partner that lands into trouble. They also have avenues to benefit from trading blocs. Joining the World Trade Organization, for instance, could mean “more opportunities to [cooperate and] participate” in the international economy, “more direct import,” and more opportunities to consult and learn advanced technologies, operation concepts and management skills from other countries (Xu, 2001, p.2-3). Mobilization To maximize the untapped benefits of globalization on operations and SCM, companies also need to exert extra effort. In spite of the different problems, opportunities for global business activities are still great. If companies only know how to “position [themselves] correctly in the whole industry value chain and cultivate their core competition ability,” they can creatively overcome and solved many familiar problems. For example, to avoid tariffs or duties, companies should hire specialists to do certain things like advice them on the effects of taxes on the supply chain and subsequently avoid them. For transportation and distribution problems, they could ask the help of trade specialists for the management of transportation and distribution operations in foreign markets. Different areas of their supply chain have already been vertically integrated by several companies. More than investments of money, time and resources, they could invest in their own trucking fleets and distribution systems to have more control over their product delivery (Spinney, 2002; Xu, 2001, p.3). Growth opportunities An efficient global supply chain is one that is flexible. Only an “innovative, creative, and strategically designed” global supply chain can keep pace with constantly changing markets without losing its competitive advantage. With globalization, the world is the playing field for corporations and its size and scope alone bestows enough room for flexibility (Spinney, 2002). In addition, if a company’s supply chain is built on a foundation for achievement, perhaps incorporated in a Mission-Vision statement or a strategic direction, then globalization will create more opportunities for it instead of becoming a hindrance. As long as the company remains focused on delivering value, it can “exploit changes” in the global business environment and arrive at “breakthrough strategic supply management strategies” (Cavinato, Flynn & Kauffman, 2006, p.24). Globalization may be a risky route for companies with domestic-based operations and SCM, but it challenges them to persevere and foster ingenuity so globalization’s unused benefits can be maximized. B Applied Biosystems Founded in 1981, Applied Biosystems (AB) is a publicly-traded operating unit of Applera Corporation. It serves the life science industry and research community through the development and marketing of pharmaceutical, biotechnology and other “instrument-based systems, consumables, software, and services” (i.e. manufacturing biochemicals, genetic engineering, etc.). The company’s headquarters is located at Forester City, California but it has an “installed base of approximately 80,000 instrument systems in nearly 100 countries.” As of June 2005, AB’s gross revenue amounted to $1.8 billion (Applied Biosystems, n.d.a). In 2008, the company entered into a merger with Invitrogen, another biotechnology company, and was christened collectively as Life Technologies Corporation (GenomeWeb, 2008). How globalization hindered and helped the operations and supply chain management of Applied Biosystems A few years ago, AB was unable to keep up with the global demand of its products. Blame can be attributed to the company’s high dependency on outdated and decentralized transportation management systems which cost of so many losses. This dependence on obsolete systems “hindered everything,” causing not just an inability to access accurate and timely data or safely ship dangerous goods, but overall customer service and satisfaction levels plummeted to an all-time low (CMS GlobalSoft, 2008, p.10). In my evaluation, globalization became a hindrance to AB at that instance because the company failed to properly manage its interconnected systems. Globalization hinders companies that have internal operational problems because, as mentioned, they are vulnerable to the volatile international marketplace without “available back-ups.” Such was the case of AB. Supplier diversity program Diversity is an “integral element” in the corporate culture of Life Technologies, as well as in AB (n.d.b), which thrives on the culture of inclusiveness. From it, the Supplier Diversity Program was born with the aim of “actively working to build and maintain relationships with well qualified small, veteran, minority and women-owned businesses.” The program also seeks to “continually increase the diversity of its world-class supply chain” as part of AB’s contribution to national and community-based economic growth. The Supplier Diversity Program includes identifying suppliers of goods and services, counseling them how to transact business with Life Technologies Corporation and its business units, providing directories and source list of possible suppliers to purchasing personnel, mediating between small businesses and the company so information is consulted with the right purchasing personnel. Challenges To keep pace with the globalization trend, Applied Biosystems needed to overhaul all its shipping processes using a bottom-top approach. The company has to confront the following challenges: Implement global visibility for shipping operations Centralize systems administration Leverage automation processes originally designed for a legacy solution Administer dangerous goods shipping effectively Develop systems for package tracking Additional implications AB still took advantage of its global connections to eliminate inconsistencies in its worldwide transportation management processes. With the help of logistics partners and technocrats, it began addressing numerous business processes and technology needs so as to remove obsolete systems and infrastructures. Administration was also centralized and made consistent, accurate and timely data in the newly implemented shipping system, accessible 24/7 from any location. AB SCM strategies prioritized standardizing and simplifying both processes and technology to improve global distribution of diagnostic, research technologies and human health products to the international marketplace (CMS GlobalSoft, 2008, p.10). Conclusion Advocates of globalization strongly believe that economic interdependence equals prosperity and peace. However, advantages and disadvantages of globalizing operations and SCM are often found at the end of the tunnel and not at the start of it. This means that globalization is not “prosperity and peace” point blank nor does it unquestionably hinder supply chains from operating smoothly in foreign marketplaces. The appropriate view of globalization is that it is a passive concept that can be bad or good depending on how companies apply it to serve their respective commercial goals. Furthermore, globalization is not just an external force that makes or breaks operations and SCM, but a reality in the 21st century wherein only the clever and resilient players can survive. This trend in conducting business is irreversible (Sachs, 2008, p.30). Reference List Applied Biosystems, n.d.a. Corporate overview. [Online] California: Applied Biosystems. Available at: http://marketing.appliedbiosystems.com/mk/get/25YRSEMS_ CORPORATE_OVERVIEW?_A=69842&_D=45875&_V=0 [Accessed 18 February 2010]. Applied Biosystems, n.d.b. Supplier diversity program. [Online] California: Applied Biosystems. Available at: http://www.appliedbiosystems.com/about/diversity.cfm [Accessed 18 February 2010]. Bizcovering, 2007. Impact of globalization. [Online] Bizcovering. Available at: http://bizcovering.com/international-business-and-trade/impact-of-globalization/ [Accessed 18 February 2010]. Boyer, K. & Verma, R., 2010. Operations and supply chain management for the 21st century. 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