Global Supply Chain Management

Global supply-chain management (GSCM) is defined as the distribution of goods and services throughout a trans-national companies’ global network to maximize profit and minimize waste. Essentially, global supply chain-management is the same as supply-chain management, but it focuses on companies and organizations that are trans-national. Global supply-chain management has six main areas of concentration: logistics management, competitor orientation, customer orientation, supply-chain coordination, supply management, and operations management. These six areas of concentration can be divided into four main areas: marketing, logistics, supply management, and operations management. Successful management of a global supply chain also requires complying with various international regulations set by a variety of non-governmental organizations (e.g. The United Nations).

There’s nothing very new about globalization, though, a concept that basically refers to the practice of sourcing, manufacturing, transporting and distributing products outside of your native country. Its modern application predates the rise of the Internet by a good 40 years, beginning in the early 1950s when container shipping was introduced, making it possible to quickly, efficiently and economically move entire container loads onto ocean vessels at ports of call throughout the world.

Global supply-chain management can be impacted by several actors who impose policies that regulate certain aspects of supply chains. Governmental and non-governmental organizations play a key role in the field as they create and enforce laws or regulations which companies must abide by. These regulatory policies often regulate social issues that pertain to the implementation and operation of a global supply chain (e.g. labour, environmental, etc.). These regulatory policies force companies to obey the regulations set in place which often impact a company’s profit.

Operating and managing a global supply chain comes with several risks. These risks can be divided into two main categories: supply-side risk and demand side risk. Supply-side risk is a category that includes risks accompanied by the availability of raw materials which affects the ability of the company to satisfy customer demands. Demand-side risk is a category that includes risks that pertain to the availability of the finished product. Depending on the supply chain, a manager may choose to minimize or take on these risks. Successful global supply-chain management occurs after implementing the appropriate framework of concentration, complying with international regulations set by governments and non-governmental organizations, and recognizing and appropriately handling the risks involved while maximizing profit and minimizing waste.

When managing a global supply chain, it is important to place emphasis on logistics performance as there has been an increase in business-to-business international marketing. Logistics is inherently difficult and complex for a global supply chain as it deals with trade regulations, shipping distances, and cross-currency issues. Companies and/or organizations who place an emphasis on logistics management can find themselves with a serious competitive advantage as it has a clear visible impact on customers.

Focusing on customer preferences when implementing and managing a companies logistic services has proven to provide the organization with several benefits. One of the major benefits is cost reduction. Costs can be reduced if the company identifies all the necessary logistic segments and then eliminates unnecessary and redundant. Customizing logistics not only reduces cost, but it also increases revenue by appealing to the customer base which in turn stays loyal to the business.

To stay competitive, organizations need to develop global logistic strategies that appropriately and effectively appeal to the customer’s needs. By doing this, companies are able to take advantage of the increasingly profitable global market.

Supply management deals with the development and management of the critical business and supplier relationship. As the market becomes progressively global, the strategy of outsourcing suppliers has increasingly used. Outsourcing suppliers has several benefits for a business if they can effectively develop the relationship.

International Regulations

Government Role – Governments can play a large role in regulating certain aspects of a global supply chains. Governments have a wide range of policy instruments that they can use to implement regulations. These instruments include but are not limited to: taxation, financial incentives, regulation, liberalization, infrastructure, land use planning, and advice and exhortation. However, before designing and implementing a regulation, it is important for governments to properly analyze any second-order effects that might occur. Second order effects are defined as the offsetting effects that happen elsewhere because of the implementation of a policy.

Recently, there has been a steady incline of governments creating and implementing regulations to promote green supply chains. To design and implement the appropriate government’s need to take into account the five aspects of sustainable logistics. The first is reducing freight transport intensity as it is becoming necessary for governments to introduce explicit policies to encourage companies to reduce the amount of freight movement within their system. The second aspect is freight modal split, which the author describes as shifting freight to greener transport modes. Governments can promote this by using policy instruments (usually taxation, financial incentives, regulation, and infrastructural measures). The third aspect is vehicle use which governments must attempt to promote companies to improve their use of road freight. This can be done through taxation, regulation, liberalization, and advice committees. The fourth aspect is increasing energy efficiency which often is seen with the introduction of general efficiency programs. Governments can raise fuel duty, subsidize driver training schemes, reduce and enforce speed limits, impose fuel economy standards, incentivize scrappage of old vehicles and give advice to promote a higher standard of energy efficiency. The fifth and final aspect is cutting emissions relative to energy use which needs to be addressed through a policy.

United Nations Role – The United Nations plays a big role in designing and implementing international regulations that have huge impacts on the operation and management of global supply chains. The United Nations created the UN Global Compact which is an organization that aims to mobilize a global movement of sustainable companies and stakeholders. The UN Global Compact attempts to mobilize a global movement by supporting companies to be responsible and to advance societal goals. The organization has created a set of ten principles which they expect companies to abide by. The ten principles fall under the broader categories of human rights, labour, environment, and anti-corruption. With regards to human rights the organization encourages businesses to support and respect human rights, and make sure they are not abusing any established human rights laws. The labour principles deal with the recognition of collective bargaining, elimination of forced labour, abolition of child labour, and elimination of discrimination. The environment principles focus on being cautious to environmental challenges, promoting greater environmental responsibility, and encouraging the development of environmentally friendly technologies. The anti-corruption principle states that businesses should work against corruption. They have published two guides which illustrate how businesses can implement the ten principles throughout their supply chains and integrate sustainability. These guides state that companies can achieve supply-chain sustainability by taking certain steps which include: committing, defining, implementing, assessing, measuring, and communicating to effectively become sustainable.

Risks of operation

Supply-side risk – Supply-side risk is a category that includes risks accompanied by the availability of raw materials which effects the ability of the company to satisfy customer demands. Several issues can arise from operating a global supply chain. Common supply side risks are often the fact that it takes a long time to receive products from around the world, and suppliers may not necessarily operate to the same quality standards. Outsourcing suppliers may provide a business several benefits but a lot of risk comes attached to it. One major risk is the fact that global currencies are constantly changing, a small change in foreign currency could have a large impact on the overall profit a business receives. Supplier order processing time variability is another supply-side risk that comes increasingly risky when outsourcing suppliers. This risk is defined by the fact that the time it takes a supplier to fulfill an order can change for every order. Businesses are exactly sure how the supplier is going to deal with the order and whether they will be able to deliver products on time.

Demand-side risk – Demand-side risk is a category that includes risks that pertain to the availability of the finished product. Demand-side risks mainly occur when companies are unable to deal with the demands of the customer base. This can happen when customer demand is higher than supply, and the company does not have enough stock to appropriately deal with the customer demand. Since customer demand changes so frequently it is tough for managers to forecast what is needed for the next month which creates the risk of running out of stock.