Applied International Trade Management - Case Study Example

Need global regulation for combating the effects of globalization on supply chain management of Introduction The term supply chain management has gained significant importance in past few decades, as a result of globalisation and increase in business complexity. Globalisation has resulted in creation of a boundary less world economy with a common global forum for business and most organisations have responded to it by introducing international supply chain where the process of value addition to finished products is dispersed across various countries (Cooper, Lambert & Pagh, 1997). The primary reason behind spatial fragmentation in the production process is to take advantage of different technologies, price variation in resources and competitive advantage in factor endowments. Economic globalisation is considered as another important factor contributing towards development of global sourcing as most companies take advantage of the wage inequality across different countries or locations (Ballou, 2004; Brown, Bessant & Lamming, 2013). In this paper, impact as well risk related to globalised supply chain will be assessed. Alongside, importance of global regulation regarding global supply chain will be discussed in an elaborated manner for developing a holistic approach to international supply chain management (SCM) process. Impact of globalisation on SCM Supply chain is a very complex process as it integrates and manages inflow and outflow of inventory, work-in-progress and final goods at different locations at different time. The main purpose of SCM is to address complexity and uncertainty related to supplying right material at right time to the right person in order to meet growing demand. SCM not only integrate procurement, continuity in material flow and distribution but also adds value to the overall process through optimisation. International supply chain is also referred as fragmentation of production activities across various locations for achieving cost advantage (Christopher, 2005; Barratt, Choi & Li, 2011). Modern-day SCM coordinates all activities between point of origin and point of consumption; therefore, is imparted with greater responsibilities compared to traditional supply chain system which focused primarily on mere delivery of goods (Fawcett, Ellram & Ogden, 2007). Globalisation has modified the task of SCM by increasing its area of operations. Due to globalised supply chain, organisations can now plan and develop idea in home country, produce the product in the host country and sell the same in the global market. The primary advantage of the SCM is that a lot of extra cost can be reduced through this process. The profit margin of a company increases significantly when it produces goods in developing nations and sell the products in develop as well as in developing economies (Bechtel & Jayaram, 1997). International SCM generates employment opportunities indirectly as it collaborates with information system, physical delivery services, local raw material suppliers and other. However, there are certain flaws in the globalised supply chain process which need to be addressed for improving the efficiency of the process (Cohen & Mallik, 1997; Dale, Van Der Wiele & Van Iwaarden, 2013). Risks and issues related to globalised supply chain A number of authors have expressed their concern regarding difficulty faced in the process of managing global supply chain. Global supply chain is essential for improving reliability, increased revenue and reduced cost, but it is a complicating process compared to domestic supply chain and is susceptible to major pitfalls (Slack, Chambers & Johnston, 2010; Spring & Boaden, 1997). It was determined that the geographical distance in global supply chain increases substantially resulting to increased in transportation cost. Alongside, firms need to take complex decisions related to trade off between increased lead-time and inventory cost. The other challenges that were recognised in global supply chain include low level of technological integration and lack of skilled labours in developing countries, quality of supplies, fluctuation related to currency exchange rate and economic and political issues in the sourcing location (Meixell & Gargeya, 2005; Mentzer, Stank & Esper, 2008). Besides the obvious sources of uncertainty, many authors have recognised a number of emerging issues as well in the global supply chain process. Presently, a number of firms outsource their manufacturing and production activities to the suppliers for reducing transportation cost. In this context, the recognised issues are suppliers’ capabilities to meet expectations of the firm in terms of quality, quantity, price and delivery of finished products. One of the important issues in the global SCM process is, information assimilation for decision making. Integration of decision at international level for coordinating activities can be a difficult task to achieve. For mitigation of these issues, it is important for firm to adopt certain global regulation or governance to improve the effectiveness of the supply chain system. Importance and need of regulation and governance in global SCM SCM is developed by integrating activities of different firms at various levels of procurement, production and distribution. It is, therefore, important to maintain a balanced relationship among all firms so that activities are smoothly coordinated. Global regulation and governance play an important role in improving coordination among various firms with the global supply chain network. For instance, the parent firm will specify product quality, process and quantity to other firms in the supply chain network but for measuring the product standards, regulation is necessary (Gereffi, Humphrey & Kaplinsky, 2001). A number of initiatives have also been taken for minimising environmental risk associated with global supply chain. In 2011, the UK bribery act was enacted for combating corruption in various sectors including supply chain. In the United States (US), the foreign corrupt practices act (FCPA) was implemented which covers extra territorial jurisdiction. From SCM perspective, unethical practices undertaken by any firm within the SCM network of US based parent company will be compensated by the parent organisation. The UK bribery act was considered as advancement in the FCPA as it covers all kind of bribes (direct and indirect). Under the act when illegal acts are pursued by suppliers or business partners of a company in the UK or in other parts of the world, the liabilities extend to personal expenses of senior management as well as that of employees. The act also considers facilitation payment as illegal. The convicted organisation is entitled to stiff and unlimited penalties under the act. The act suggests organisations to conduct due diligence on its suppliers and partner firms for minimising incidents related to bribery (The Guardian, 2014). The US Dodd Frank Act was adopted in 2010 which states that organisations need to disclose elaborately regarding usage of conflict minerals such as gold, tin and tantalum (if any), their source of import or procurement and reporting regarding exercise of due diligence. However, the act is presently applicable only on US based companies and it is expected that similar act will be incorporated in the European Union as well as in other countries so that consumers are protected from usage of conflicted commodities. Another regulatory initiative that is considered important from the perspective of supply chain regulation is the California Transparency in Supply Chains Act. The act aims at increasing disclosure by organisations operating in the state regarding their practices, policies, and processes so as to ensure that activities related to human rights violation are eliminated. An important requirement of the act is that the disclosures by companies should be public in nature and directly accessible to consumers (The Guardian, 2014). Another important regulatory initiative in context of sustainable supply chain practices is EU FLEGT (Forest Law Enforcement, Governance and Trade). The law was incorporated in 2010 and according to it, firms need to practice due diligence for keeping illegal timber products away from the market. The act strictly prohibits marketing of illegally logged timber and related products in the European market. Besides these regulations, a number of guidelines have been published by the UN and OECD regarding sustainable business practices (The Guardian, 2014). Along with the initiatives, it is important to assess the various factors that have caused the increasing need of regulation in the supply chain segment. These factors or issues are discussed as follows: Market access Dismantling of trade barriers in the developed country does not allow producers from developing countries to gain access to the developed market automatically, as the related supply chains are generally governed by limited buyers (Goodale, et al., 2011). It was ascertained that lead organisations generally depend on large sources or suppliers and eliminate small one keeping in view the consumer expectations, local and global regulatory factors and labour and environment standards. Supply chain regulations ensure that lead organisations and outside producers have equal scope in market access but without compromising sustainability and business integrity (Coyle, Bardi & Langley, 2003; Gibbon, Bair & Ponte, 2008; Vidal & Goetschalckx, 1997). Competition regarding acquisition of production capabilities Studies suggest that those producers who are accounted within the supply chain of lead organisations are positioned on a learning curve. The lead firms, as a result of consumer pressure and demand, tend to be demanding regarding low cost, speedy delivery and high quality. However, they do ensure that best practices are implemented by suppliers and other related producers given that consumer demand regarding ethically produced products are increasing at a rapid rate. Additionally the companies provide necessary support in the form of raised skill, improved layout and operational flow. It was established that highly regulated supply chains are created through highly challenging environment and strong support from the lead organisations (Gereffi, Humphrey & Sturgeon, 2005; Ketchen & Giunipero, 2004). Distribution of profit A clear definition of the way various supply chains are regulated result in better understanding of the profit distribution along the supply chain. According to certain authors, a number firm develop governing capabilities through intangible competencies such as research and development, marketing capabilities and branding that are characterised by high return and high entry barriers. These firms are generally located in developed countries while firms from developing economies are generally into tangible capabilities such as production activities resulting in low return and entry barriers. Therefore, for ensuring homogenous distribution of gain among interlinked firms in developing and developed economies, supply chain governance is necessary (Oakland, 2014; Simatupang & Sridharan, 2002; Vidal & Goetschalckx, 1997). Framework regarding policy initiatives Policies are considered as control guides for risk minimisation and decision making in an organisation. Prolonged dependence on same policies results in development of outdated system which is generally irrelevant in context of new conditions of organisational relationships. Outdated policies minimises organisational consistency, capacity utilisation, demand forecasting and quality of procurement. Another important factor which is noteworthy in this context is that, most policies are developed considering requirements of local companies in the SCM network. Therefore, global regulations help in developing policies that can be implemented for a long period of time and can be applied to different organisations irrespective of their locations (Gibbon, Bair & Ponte, 2008; Vidal & Goetschalckx, 1997; Manuj & Mentzer, 2008). Asymmetric information An asymmetric information system is created when different parties posses different level of information regarding products, demand structure and chain operations. Asymmetric or broken information system creates information gaps among the firms within the same SCM network. It was gathered by experts that due to lack of mutual trusts, different firms refrain from sharing complete information with other firms. Limited information blurs organisational visibility regarding various trade-offs between decisions making and cost. Global regulation in supply chain helps in establishing a trust among interlinked firms so that a clear network of information flow is created (Christopher & Lee, 2004; Gibbon, Bair & Ponte, 2008). Conclusion The paper focuses on understanding the complexity in global supply chain as it was ascertained that it bears significant differences with respect to domestic supply chain. It was gathered after analysing various literatures that, globalisation has considerable positive impact on supply chain, but, it is also responsible for development of certain risks and issues therein. Globalisation has caused better access to resources, increase in profit margin and cost advantage. However, the risks that were recognised in globalised supply chain process are asymmetric information system, inappropriate performance measurement procedure and so on. Besides assessing impact of globalisation on SCM, the paper discusses importance of global regulatory initiatives as well as instances of various regulatory frameworks in context of supply chain management so that a holistic approach is developed. References Ballou, R. H. (2004) Business Logistics/Supply Chain Management. Upper Saddle River, NJ: Pearson. Barratt, M., Choi, T. Y. & Li, M. (2011). Qualitative case studies in operations management: trends, research outcomes, and future research implications. Journal of Operations Management, 29(4), 329-342. Bechtel, C. & Jayaram, J. (1997). Supply chain management: a strategic perspective. The International Journal of Logistics Management, 8(1), 15-34. Brown, S., Bessant, J. R. & Lamming, R. (2013). Strategic operations management. Routledge. Christopher, M. & Lee, H. (2004). Mitigating supply chain risk through improved confidence. International Journal of Physical Distribution & Logistics Management, 34(5), 388-396. Christopher, M. (2005). Logistics and supply chain management (3rd. Edition). Harlow: Pearson Education Ltd. Cohen, M. A. & Mallik, S. (1997). Global supply chains: research and applications.  Production and Operations Management, 6(3), 193-210. Cooper, M. C., Lambert, D. M., & Pagh, J. D. (1997). Supply chain management: more than a new name for logistics. The International Journal of Logistics Management, 8(1), 1-14. Coyle, J. J., Bardi, E. J. & Langley, C. J. (2003). The management of business logistics. A supply chain perspective (7th. Edition). Mason, Ohio: Thompson Learning. Dale, B. G., Van Der Wiele, T. & Van Iwaarden, J. (2013). Managing quality. New York: John Wiley & Sons. Fawcett, S. E., Ellram, L. M. & Ogden, J. A. (2007). Supply chain management: From vision to implementation. Upper Saddle River, NJ: Pearson. Gereffi, G., Humphrey, J. & Kaplinsky, R. (2001). Introduction: Globalisation, value chains and development. IDS bulletin, 32(3), 1-8. Gereffi, G., Humphrey, J. & Sturgeon, T. (2005). The governance of global value chains.  Review of international political economy, 12(1), 78-104. Gibbon, P., Bair, J. & Ponte, S. (2008). Governing global value chains: an introduction.  Economy and Society, 37(3), 315-338. Goodale, J. C., Kuratko, D. F., Hornsby, J. S. & Covin, J. G. (2011). Operations management and corporate entrepreneurship: The moderating effect of operations control on the antecedents of corporate entrepreneurial activity in relation to innovation performance. Journal of Operations Management, 29(1), 116-127. Ketchen, D. J. & Giunipero, L. C., 2004. The intersection of strategic management and supply chain management. Industrial Marketing Management, 33(1), pp. 51-56. Manuj, I. & Mentzer, J. T. (2008). Global supply chain risk management strategies.  International Journal of Physical Distribution & Logistics Management, 38(3), 192-223. Meixell, M. J., & Gargeya, V. B. (2005). Global supply chain design: A literature review and critique. Transportation Research Part E: Logistics and Transportation Review, 41(6), 531-550. Mentzer, J. T., Stank, T. P. & Esper, T. L. (2008). Supply chain management and its relationship to logistics, marketing, production, and operations management. Journal of Business Logistics, 29(1), 31-46. Oakland, J. S. (2014). Total Quality Management and Operational Excellence: Text with Cases. London: Routledge. Simatupang, T. M. & Sridharan, R. (2002). The collaborative supply chain. The International Journal of Logistics Management, 13(1), 15-30. Slack, N., Chambers, S. & Johnston, R. (2010). Operations Management (6th edition). New York: Pearson. Spring, M. & Boaden, R. (1997). One more time: how do you win orders? A critical reappraisal of the Hill manufacturing strategy framework. International Journal of Operations & Production Management, 17(8), 757-779. The Guardian. (2014). Regulating supply chain sustainability. Retrieved from http://www.theguardian.com/sustainable-business/blog/regulating-supply-chain-sustainability. Vidal, C. J. & Goetschalckx, M. (1997). Strategic production-distribution models: A critical review with emphasis on global supply chain models. European Journal of Operational Research, 98(1), 1-18. Read More