Global Supply Chain Management - Literature review Example

Global Supply Chain Management Introduction Globalization and offshore sourcing are essential components that haveresulted in the emergence of global supply chain management as a core area of concern for many business organizations aiming at overcoming the stiff competition within their industries. The challenges facing business organizations that have taken advantage of modern infrastructure and technology such as transport and communication to extend operations at a global level are similar to those traditionally experienced in the supply chain management. However, there are significant changes in the way organizations operating on a domestic market scale and those operating in a global scale experience these challenges especially since businesses operating under a global supply chain management have to assess their worldwide interests and suppliers instead of simply domestic or national orientation in procurement and risk their activities. Consequently, the objective of this report is to discuss how a company can sustain a long-term supply chain strategy that complements its products and markets, especially in an increasingly complex global environment. Literature Review Literature on global supply chain management identifies a number of trends that have transformed logistics for businesses. Logistics complexity in the current business environment is as a result of having to deal with fragmented supply channels, the need to produce a range of product variations and increased consumer demand for customization based on their choice and style (Childerhouse, Aitken and Towill, 2002; Melnyk, Davis, Spekman & Sandor, 2010). Consequently, businesses have to deal with a number of issues including cost management, increased networking, customer needs and risk management for them to compete in the global business environment effectively. Cost Management According to Lambert and Pohlen (2001), operating in a globalized environment means business organizations have to manage costs involved in getting the finished products to the customers. Consequently, there is need for businesses to manage customer service, logistics capability, product innovation, and most that will translate in low cost. The costs involved in all the organizations operations from sourcing raw material to delivery of products into the market is going to be reflected in the pricing of the finished product especially with shareholders also demanding returns of investment in form of dividends (Lambert and Pohlen, 2001). The burden on the business organization to find the best deals is amplified by the fact that customers do not necessarily pay higher prices for especially for logistics tracking and visibility capabilities. However, the result of operating in a globalized environment is not necessarily negative, as global supply chains can also act as a source of competitive advantage for businesses that will take grasp some of the advantages it possess. This is because taking advantage of global configurations provides firms with capabilities to access cheap raw materials and labour, improved financing prospects, increased size of product markets and incentives provide by host governments to attract foreign capital (Childerhouse, Aitken and Towill, 2002; Melnyk, Davis, Spekman & Sandor, 2010; Manuj & Mentzer, 2008). Increased Networking Mouritsen, Skjøtt-Larsen and Kotzab (2003) assert the current competitive environment requires businesses to establish network capabilities that will ensure the creation of new channels to improve customer experience. The ongoing trend especially when dealing with global supply chain means that the traditional supply chain where businesses had to focus only on a single straightforward channel to deliver to the customers is not effective anymore. The current supply chain involves channels that are well developed and interlinked with other channels; therefore, requiring closer supervisions for them to contribute positively to the development of the organization. Risk Management Businesses operating in a global market have a number of advantages that can potentially, results in attracting large market segments. However, just as the benefits are higher for these businesses, there globalization also exposes these businesses to increased risks that are as a result of operating in different markets. For successful operations, business organizations must therefore be aware of the risks that are involved in their operations. The increase in risks associated by global environment is due to increased turbulence in the different markets while supply chain strategies being utilized are based on the past period of relative stability (Christopher and Holweg, 2011). When operating a global supply chain, there are four categories of risks including supply, demand, operational, and security in operation that a business organization must strategize to overcome (Christopher & Peck, 2004; Manuj & Mentzer, 2008). With regard to risks affecting supply, businesses must be aware of risks that are as a result of unfavourable experiences in inbound supply which affects the ability of the central business organization to deliver customer demand within predictable costs and time, or that might result in threats to the life and safety of the customer. Risks in operations relate to the adverse effects the organization might experience which affects its internal competencies in production of goods and services, timeliness and quality of products and profitability of the output. Demand risk on the other hand relates to outcomes due to adverse events affecting the outbound flows especially those with implications to the possibility of customers making orders with the affected business organization. Risks related to security matters involve outcomes that put the human resource, information systems and operations reliability in danger that might result in threat such as breaches in freight, access to data or proprietary knowledge by unauthorized individuals, sabotage and vandalism of organization property (Zsidisin, 2003). When dealing with markets that have preconceived risks especially in demand and supply, a business organization might be forced to apply a postponement supply chain, which helps to minimize risk by for example choosing to delay the final manufacturing of products until the receipt of actual customer order (Yang, Burns & Backhouse, 2004). Customer Needs Business organizations have been drawn to operate in a global economy in order to access lower costs in labour, but this quest for lower prices also leads to increased costs in transportation and changes in regulatory requirements with implications being nowhere businesses source and produce (Childerhouse, Aitken and Towill, 2002). New environment also translates into increased complexity of processes taken for the business to get products to customers given that the organization will be required to sell to more customers in many regions. The potential of serving new customers in new regions is lucrative for a business organization that takes this step; however, this also comes with additional challenges in satisfying varied needs of consumers present in different markets especially when an organization is used to providing standard logistics solutions to a homogeneous regional customer base (Meixell and Gargeya, 2005). Businesses operating in such environment are mostly familiar with continuous replenishment supply chain since their customer demand is predictable due to established customer relations over the years (Christopher, Peck and Towill, 2006; Holweg, Disney, Holmström and Småros, 2005). Complexity in a global supply chain is heightened by increased competition among business organizations in addition to existence of customers who demand perfect order and reliable delivery channels. According to Melnyk, Davis, Spekman & Sandor, (2010), a successful business organization is that which will be able to respond to the various needs of the customers while also taking care of the environment to ensure sustainability. Types of supply chain strategies There are a number of generic supply chain strategies that a business organization can develop to drive their logistics successfully. Businesses might pick from one of lean agile, postponement or leagile -oriented supplely management strategy. Businesses that choose lean supply chain strategy are motivated by the need to reduce cost of operations. Consequently, business organization that favours engaging on lean supply will have supply chains that are appropriate for lean production in order manage wastage especially in manufacturing companies (Mason-Jones, Naylor and Towill, 2000). Agile supply chain strategy emphases the flexibility of business operations for efficient response to various needs that comes with customer demand. Flexibility in business operations for an organization being driven by agile supply chain strategy will have to involve a number of areas that includes logistics processes, organisational structures, information systems and the attitude of employees (Mangan, Lalwani & Fynes, 2008; Christopher et al., 2006). This strategy stems from flexible manufacturing systems (FMS) that was adopted based on the belief that to achieve manufacturing flexibility, organizations had to adopt automation as it could contribute to rapid change resulting in greater receptiveness to particular changes in product volume or mix (Christopher and Towill, 2000). However, this idea has been applied over time to wider business operations including in supply chain management. The other supply chain strategy that can be adopted by a business organization is postponement strategy. This supply chain strategy is based on the belief that supply allotment or creation of finished products can be delayed for some time towards the actual time to meet their demand. Consequently, postponement supply chain strategy depends on a business organization creating a mechanism for accurate forecast of demand (Yang, Burns and Backhouse, 2004). It is believed that the error in foresting demand for particular product decreases as time reduces up to the actual time of delivery while the accuracy increases as time draws near. The consequence of this belief is that as time extends into the future so does the growth of forecast error margins, which means the forecast demand will be characterised by increased variations as time progresses into the future (Prater, Biehl and Smith, 2001). Leagile supply chain strategy is based on combination of both lean and agile principles to get a middle ground for a business organization to operate effectively. This strategy has been found to be suitable for businesses dealing with products where there is long lead-time in addition to having unpredictable demand (Mason-Jones, Naylor and Towill, 2000). Consequently, preferred supply chain for any business organization is one that matches the products with considerations regarding emphasis on lean supply chains or agile supply chains based on where the business favours efficiency or flexibility respectively (Fisher, 1997). Models/Frameworks Given the existence of multiple supply chain strategies, businesses are tasked with identifying one that is more suitable to their operations. Fisher (1997) highlights a number of important criteria that can be used to identify the most appropriate supply chain strategy amongst the four. Firstly, the researcher notes the importance of businesses to determine demand patterns that their products attract. On this basis, Fisher (1997) identifies two types of basic products noting that the products can be categorized based on whether they are functional or innovative products. In this regard, business must make decisions based on the aspects of their production processes, which will rely on whether the product attracts stable and predictable demand, whether they are basic need items, have a long life cycle, competition in the market and the profit margins derived from sale and operations. On the type of supply chain to be adopted, Fisher sees this as being based on two types of processes that the researcher refers to as Physically Efficient Process. This is based on the ability to supply a given amount of products at the lowest cost possible and Market Responsive Process, which is about the quick adaptability of the product to changing market needs. The chosen supply chain strategy must respond to two essential roles that cover physical or visible functions including conversion of raw material into components, creating finished products and transportation. The supply chain strategy must also be capable of performing market mediation function, which includes contributing to the creation of a variety of products for customers, arrival of products to markets and production of products demanded by consumers. Examples/Cases One business organization that follows the market responsive strategy is Dell, which is known to provide internet-enabled direct sales following the make-to-order strategy. Using this strategy the business is able to present customers with a variety of choices while still maintaining its inventory costs under control (Langenberg, Seifert & Billington, 2008). This is a good example of businesses that follows agile supply chain strategy, as it is dependent on flexible and efficient response to unique customer demand. According to Christopher et al (2006) for a business to adopt an appropriate supply chain strategy there should in addition to considering the demand predictability, be able to respond to the lead-time dimension. Using an example of the UK lighting company, Childerhouse, Aitken and Towill (2002) argues that since the company cannot compete with organizations that have taken advantage of low cost countries such as China based low cost the organization can concentrate on advantages that come with having very short lead time. This approach will enable an organization to use a lean demand channel and a make-to-stock policy to ensure deliveries to given customer orders are meet in very short lead-time. Another example of how to use a suitable supply chain strategy for business success is about the traditional supply chain for apparel industry. This industry was previously characterized by simple supply chain that involved providing customers with quality on-fashion attire at the right price presented in an attractive display and store settings and helpful sales associates. In this circumstance, the function of the supply chain was to deliver goods to the retail store for the customers (Christopher and Lee, 2004). However, the changes in the industry mean that the bricks and mortar store functions as a single channel in a network that also includes other channels such e-commerce sites, social and mobile sites, catalogues and single-use channels that include flash sales and pop-up stores as seen in ZARA networks (Ferdows, Lewis and Machuca, 2004). Discussion For organizations operating in a globalized environment where sometimes supply might surpass demand there is a possibility of sub-optimization in costs. This is true for instance when considering offering just-in-time delivery to reduce customer inventories. However, this might lead to higher inventories by supplier in addition to higher costs of transportation. Christopher et al (2006) advices that in order to prevent the risks of sub-optimization, supply chain decisions taken by the business organization should meet the objectives for enabling marketing. Although business organizations can outsource some of their operations to low cost countries, this might not be the only option or the best one to take especially since the savings from emerging markets are no longer easy to find as they were in the past. In such situations, companies must adopt an analytical approach to their market situations to ensure the best approach is taken (Handfield, Straube, Pfohl and Wieland, 2013). Conclusions The global business environment is characterized by different trends including the need to be cost effective, satisfying customer demand, adoption of an effective network and risk management. These trends mean businesses must adopt an appropriate supply strategy that will ensure effective and efficient competition with others in their industry for exiting global resources and customers. Businesses should introduce supply chain strategies that reflect the type of products that includes functional or innovative products. Additionally, the supply chain strategy should also correspond to approaches adopted by the business especially since businesses have over the years, preferred one of Physically Efficient Process and Market-Responsive Process as a preferred approach. References Childerhouse, P., Aitken, J., & Towill, D. R., 2002. Analysis and design of focused demand chains. Journal of Operations Management, 20(6), 675-689. Christopher, M., Peck, H. &Towill, D., 2006. A taxonomy for selecting global supply chain strategies. The International Journal of Logistics Management, 17(2), 277-287. Christopher, M., & Lee, H., 2004. 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