Global Supply Chains, Demand and Supply Curves - Literature review Example

Global Supply Chain Introduction Supply chains are usually made by a number of entities, and all of them are very crucial in making sure that the product is not only produced, but also delivered to the market. Each of these players has their role and also has their own interest which is to make profit from the supply chain. Modern supply chains have become very complicated and very advanced in terms of the geographical reach as well as the volumes of goods pushed through the supply chain (Branch, 2008). Globalization has led to global supply chains and this has brought with it many issues. Any supply chain, regardless of size and type or even geographical coverage, always faces some problems which are common to all supply chains. One issue with regard to any supply chain is the power relations in a supply chain. This paper hypothesizes that the nature and especially the size of the global supply chain have amplified the problems which are present in these supply chains. This is especially with regard to the power relations in the supply chain. Due to the big size of the global supply chain, the issue of power imbalances in the global supply is more pronounced. One of the main risks of the global supply chains is the imbalance of power in the supply chain. In nay supply chain, there are power relations between the various actors and this affects the manner in which the product is delivered all the way to the customers. Various factors determine these power relations and there is high level of necessity to ensure that there are proper ways to make sure that everyone wins (Kouvelis, 2007). A major example of how there can be power imbalances in the demand and supply chain is the agricultural produce supply chain. In a modern world, the demand for agricultural products has led to a global supply chain whereby produce from any point in the world can be consumed in almost any other part of the world. For instance, agricultural produce is shipped halfway around the world to be consumers far away from the original point of production. Mangoes that produced in Thailand and Malaysia are sold in UK grocery stores while tea produced in Kenya is drunk in UK and US coffee shops. Flowers produced in East Africa, despite the high rate of perish-ability, are sold in European flower shops and enjoyed by lovers within twenty four hours of picking from the farms. This, from a theoretical point of view indicates that the modern farmer has a very big advantage in that he or she has a global market for her product. However, a closer look at the global supply chain for agricultural products indicates that due to unbalanced power relations in the agricultural global supply chain, the farmers don’t end up benefitting as much as they should. The supply chain is made of business, and sometimes government players and the power between these players is determined by a number of factors; Buying in bulk According to Porter (2008), one of the ways that a business can gain strategic advantage is by the use of being able to control the supply chain. This is mainly achieved by a business if the business is able to buy in bulk. Ability to buy in bulk makes it possible for the business to have a controlling power to the suppliers. This means that the business can control the way the producers produce their product as well as the prices for the products. This kind of power relations in the global supply chain is very evident in the global supply chain for agricultural products. The buyers have a higher bargaining power over the suppliers because the buyers buy in bulk and so are able to control the prices. Most producers are small scale farmers who are not able to export their products directly to the waiting consumers in the foreign markets. Due to this factor, they have to wait for the buyers who buy in bulk in order to make their sale. As a result of the fact that the products are not able to access the market directly, they are easily exploited by the buyers. In fact, the buyers are not only able to exploit the producers but also the consumers who also are not able to access the producers directly from the consumers. A good example is the case with Kenyan, Malaysian and Middle East farmers who despite the increase in the demand for their products are not able to benefit from this increase. Most of them happen to be third world nations where a big majority of the farmers are poor and don’t have advanced technology. The buyers of their products can determine the price and set the standards of production, without the farmers being able to have any power to determine the power relations. Selling in bulk Porter (2008) also identified that selling in bulk is another way in which businesses are able to increase their strategic edge in the supply chain. Organizations that produce in the bulk are able to create a power relationship where they are more powerful than the consumers and therefore able to increase their advantage. The agriculture supply chain can be seen as also being highly affected by this factor in most cases. If the agricultural produce supply chain can be considered as starting from the suppliers of farm inputs such as fertilizers and seeds as opposed from the farmer himself, then a new kind of power relationship is derived. Most suppliers of these inputs such as seeds and fertilizers are also very powerful in that they control the sector. They can be able to determine how the farmer uses their seeds and other inputs. A good example is in United States of America where big suppliers of farm inputs such as Monsanto are able to control the way the farmers do their farming. In fact, according to a documentary by Kenner (2008), it is said that the farmers have very little choice on how to produce their products. Monsanto for instance, according to this Kenner (2008), is so powerful that in places where they control, the farmers do not have a choice of not using their own seeds because they say this will lead to the farmer benefiting from the firms copyright property (GMO). The intellectual rights in this situation are the corn seeds. Corn has a way of fertilization that is powered by wind since the male parts of the reproductive part of the pant can be blown to so many miles from where the plant is growing. This means that if a farmer is doing his farming in near farms that use Monsanto seeds, his farm may be fertilized from the Monsanto seeds which are thought to be superior because they have been advanced through research and genetic engineering by Monsanto research facilities. Monsanto therefore tries as much as possible and in most cases succeeds in preventing a lot of farmers from doing independent farming. These farmers are forced to not only use Monsanto’s seeds, which are very expensive (thus affecting their profitability), but also determining how and why the farmer will sell his product. Tyson, a meat producing company is said to own the whole process of producing any type of meat from chicken, pork, beef etc (Kenner, 2008). These power relationships between the farmers and the big companies like Tyson make it harder for the farmers to develop their own business strategies which will give then the best results. Although the farmers are technically independent from Tyson, Tyson determines every step of production of these agricultural products. Once the farmer signs a contract with a company such as Tyson, they have to do everything the way the company requires even in cases where the producers know that ethical issues have been overlooked. This is especially so where there is the use of genetically engineered produce. According to Kenner (2008), big companies like Tyson are also known to force farmers to buy new equipment which are very expensive, even in instances where the new technologies are not useful in improving the farmers productivity. To comply with these needs of the big firms, the producers have to take big bank loans which are hardly easy to pay considering the low prices offered to the farmers and therefore the farmers’ profitability diminishes. Since the farmers can hardly pay off these huge loans, they lose control of their farming business and this makes easy for the companies such as Tyson to have even more control on the farmers (Kenner, 2008). Demand and supply curves Needless to mention, the demand and supply curves also affects the power balance in the almost any market. In a perfect market, higher demand may seem to give more controlling power to the producers. When the demand for a good is more than supply, the power will shift to the supply side and from the demand side. At the same time, if there is less demand and more supply, the power will shift from the supply side and move to the demand side. However, markets are hardly ever perfect and this means that this almost never happens. An excellent example of this is the agricultural produce global supply chain. Instead of the farmers benefitting from the fact that there is high demand for their product, they end up having to lose more even as the demand for their products increases. This is especially caused because of the presence of the middle men. The middle men The existence of middle men in a market may bend the demand curve in such a way that the demand and supply side never really experience the shifts which should occur in a perfect market. Middle men neither serve the benefit of the producers nor the consumers. Their interest is to make sure that they benefit the most even in cases where the market conditions seem to favor any of the parties in the equitation, such as the producers or the consumers (Drake, 2012). The middle men, especially without regulation by the government can adversely affect the demand supply curve because they have a lot of power. This power of control comes from the fact that they play a very major and important role in the supply chain, especially a global supply chain. These middle men are not single individuals but in most cases are big firms with a lot of financial and infrastructure resources which are very useful in making sure that the global supply chain is running. They use these in making sure that they control the market in any way they want in order to guarantee that they benefit the most from the market. A good example is the global supply chain for fruits where the large scale importers and exporters have the infrastructure and financial resources necessary to make the transfer of these goods from eh point of production to the point of sale. The single farmer would not afford the expensive infrastructure and the high financial obligation to transport their product to the target market. The middlemen in the form of exporters then provide for the solution to help the farmers to deliver their produce to the market, but bring in new issue by taking advantage of the farmer. On the demand side, the customer is not able to access the product directly and has to depend on the importers. Just like the exporters, the importers will take advantage of the situation. This means that even in situations where there is an ample supply the importers may still sell these products to the consumers at a very expensive price. Fixing the market The issue of middle men is always fixing the market so that the laws of demand and supply will not apply, or will work in their favor. One of the best examples of this is the market for diamonds. It is argued that in the early years of diamond production in the 19th century, diamond traders used to fix the market to avoid the flooding of the market with diamond because this would inflate the prices of the diamond thus making them cheaper. Because of this, firms such as the De Beers regulated the production of diamonds and even in cases where there was enough diamonds available from the mines; they would hold them in order to maintain the high demand. The same case happens in almost any industry where the middle men are too powerful. The agricultural produce industry is not an exception and in most cases, the middle men always interfere with the roles of the demand and supply curves in order to benefit from the market, usually at the expense of the suppliers and the consumers. For instance, even in cases where the demand for agricultural produce increases in the prime markets such as Europe, the exporters take advantage in the poor countries such as Kenya, Malaysia and Thailand. This interference with the market is only possible in cases where the middle men are too powerful. Government regulation The government can also have a role in shifting the power relations in a supply chain. This is more pronounced in where the government wants to support a certain industry and therefore develops various policies to do the same. In countries where the government supports the producers, they are able to overcome control by the middlemen and this makes it possible for them to benefit the most. However, considering that the government or governments are also economic entities, they are also affected by the same issues of supply and demand and this also mean that the roles of strategic advantage caused by volume of production will still play their role in the market in determining the power relations. Conclusions It is very clear that there are power imbalances within the global supply chain for agricultural products. Due to the size of the supply chain, the power relations in a global supply chain for the agricultural products have more pronounced effects. On the one side of the global supply chain is the producer who has very little power and very few resources. On the other far end is a consumer who is also not very empowered in terms of the information he has or ability to access the product. In between these two is the middle man who takes advantage of the situation. Due to the fact that these middlemen who appear in the form of importers and exporters are very powerful, they are able to take control of the market, taking advantage of both the famers and the consumers. As a result, there is a need for intervention by the governments of the affected countries in order to make sure that the middle men doesn’t have too much authority and that the farmers and the consumers are protected. This can be achieved by the use of government policies which will protect the farmers and consumers. Famers can also form societies in which to help them be able to deliver their goods to the market while bypassing ht middle men. Bibliography Branch, A. (2008). Global Supply Chain Management and International Logistics. London, UK: Routledge. Drake, M. (2012). Global Supply Chain Management: Supply and operations management collection. New York, NY: Business Expert Press. Kenner, R. (Director). (2008). Food, Inc. [Motion Picture]. Kouvelis, P. (2007). The Structure of Global Supply Chains. Norwell, MA: Now Publishers Inc. Porter, M. (2008). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York, NY: Simon and Schuster. Read More