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Global supply chain management isn’t easy.
Businesses that want to harness the advantages of global supply chains must find ways to overcome several challenges – many of which are complex.
So, what challenges is your business up against, and how can you handle them effectively?
Whether it’s cash flow, data, or language barriers, this guide outlines 10 of the most common global supply chain management challenges and ways you can approach them. We’ll also round off this blog post by highlighting five key benefits of global supply chains to show how your efforts can pay off.
But before we dive in, let’s set the scene with a quick introduction to global supply chain management.
What is the global supply chain?
A global supply chain is an international system that businesses use to produce and distribute goods and services. This network starts with raw materials and ends when the final product or service is delivered to customers.
Many different entities make up a global supply chain, including suppliers, manufacturers, freight forwarders, warehouses, distributors, and retailers. These entities facilitate the movement of information and resources around the world.
Most global supply chains span across multiple continents and countries, taking advantage of relatively low materials, labour, and manufacturing costs.
What is global supply chain management?
Global supply-chain management (also known as global SCM) is the process of administering and directing a network of entities to produce and distribute goods and services internationally. The core aims of global supply chain management are to maximise profit, reduce inefficiencies, and deliver goods and services timely.
10 global supply chain challenges and how to approach them
The ‘Amazon Effect‘ has resulted in consumers – and increasingly, businesses – who expect a frictionless shopping experience with virtually instant results. This effect has set fire to a global supply chain arms race.
As Wael Safwat, a senior Procurement thought leader, said, “It’s not the organisations that are competing, it’s the supply chains that are competing.”
The ultimate challenge of global supply chain management is to satisfy demand quicker, cheaper, and with less waste than competitors – all while maintaining quality standards. In other words, to succeed in today’s markets, your business must effectively manage a lot of moving parts.
Here are 10 of the top global supply chain challenges to keep in mind, along with tips on how to best handle them.
1. Lead times
Buyers increasingly expect faster deliveries.
“The effect of Amazon is heightened expectations,” says C. John Langley, a clinical professor of supply chain management. “Next week is no longer good enough. It’s got to be on its way now and arrive at its destination within a day or two.”
However, global supply chains often measure shipping times in weeks and months. These long lead times make it challenging to balance supply and demand effectively.
Effective planning is the solution.
Although air freight is more expensive than ocean freight, it’s a lot faster. Consider using land or ocean freight day-to-day, but having air freight agreements in place that you can use quickly to capitalise on sudden increases in demand.
You could also follow Amazon’s lead and set up a small network of warehouses close to your target market’s locations to store inventory so you can deliver to buyers faster.
Unfortunately, long lead times can expose your shipments to even longer delays. With so many steps in the global supply chain and such large distances for goods to travel, there’s many opportunities for things to go wrong.
As a result, it’s crucial to have firm completion dates and shipping times. It’s also vital to have agreements in place with your partners that outline what happens when things don’t go according to plan.
3. Cash flow
Cash flow management is a serious issue in every business, but it’s a particularly complicated task in global logistics and supply chain management.
Businesses must keep track and plan for a complex web of expenses. But with so many entities operating simultaneously, it’s hard to know where and when to allocate your resources.
For example, if you spend £10,000 on materials, you need to know how much it will cost to turn them into products and get them into customers’ hands. This process might include shipping, storage, manufacturing, packaging, freight forwarding, distribution, marketing, sales, and more.
Again, plan ahead. Create a detailed calendar of future expenses and take measures to ensure you’ll be able to for them when the time comes.
4. Data management
By now, you may have realised that there are so many data points to take into account, data management itself is an issue.
“Organization’s can quickly become overwhelmed by the vast amount of data today’s enterprise systems, connected devices and social networks create,” said Allan Dow, president of the leading AI-based supply chain planning solution Logicality.
This is why a survey by Logility and APICS, the association for supply chain management, found that:
- 36% of respondents see the opportunity to balance supply and demand as a top driver for their analytics initiative.
- 19% of companies want to leverage machine learning to improve their business’s forecast accuracy.
In short, to manage the global supply chain effectively, businesses must use and customise a suitable data management solution.
5. Exposure to risk
Many countries providing relatively inexpensive labour and manufacturing costs also typically have less stable governments and currencies. Local changes in leadership and policy can often affect the global supply chain.
What’s more, global supply chains are exposed to risks that local supply chains aren’t, such as international policy changes, for example, Brexit.
Companies have very little control over these factors, so it’s best to ‘hope for the best and prepare for the worst.’
Set up prospective agreements with suppliers, manufacturers, and freight forwarders in another region or country to fall back on. You may also want to secure appropriate insurance policies to cushion potential blows.
6. Accountability and compliance
Companies have to consider social compliance when doing business internationally.
Unfortunately, modern slavery, child labour practices, unacceptable working conditions and unfair compensation are just some of the unethical practices present in global supply chains.
As time goes on, there are more and more ways to verify supply chain partners to ensure ethical standards are followed. However, there’s often no way to be certain that everything is above board.
Companies must manage the risks associated with these issues: potential brand damage, legal action, and most importantly, the irreparable harm caused to individuals in exchange for profit.
Signing up to schemes such as the Certified B Corporation and Amfori’s Business Social Compliance Initiative (BSCI) is a great way to handle these risks.
7. Quality control and defects
Quality issues can also be challenging to manage. For example, businesses must consider the differences in acceptable defect levels in different countries.
It’s essential to clarify the quality level expected and the percentage of acceptable defects ahead of time. It’s also best to define who is responsible and what happens should there be a disagreement in the future.
8. Language barriers
Another drawback to consider is that many countries will conduct day-to-day operations in a different language.
You can manage these types of issues by employing professional interpreters with specialist industry knowledge. Plus, it’s always worth clarifying expectations and responsibilities in writing.
9. Time zones
Times zones can also make communication difficult. For example, the time difference between the centre of America and central China is a whopping 15 hours.
When there’s no overlap in working hours, you can’t just pick up the phone.
Instead, communication often happens via email and messaging platforms. In this situation, you’ll usually have to wait until the next day to receive an answer. This can make it very challenging to oversee technical aspects of the production process.
For this reason, many companies set up small outposts of company representatives to manage things locally in each region of the global supply chain.
10. Exchange rate and foreign transaction costs
Exchange rate fluctuations matter little when taking a holiday abroad. However, even the smallest changes in foreign exchange rates can increase costs significantly when managing a global supply chain.
Developing countries may offer the cheapest labour rates globally, but they often have relatively unstable currencies that are susceptible to regional influences.
Another consideration is the high cost of international transactions when using a bank. These fees can quickly add up and hurt your margins.
Try to make large purchases when your domestic currency is strong and avoid hefty international banking fees with an innovative global payment provider.
5 benefits of global supply chains
If there are so many global supply chain management challenges to overcome, why don’t companies use a local supply chain? Here are five key benefits of global supply chain networks that you can use to grow your company.
1. More options
Global supply chain networks can offer significant sourcing advantages.
When using a global supply chain, businesses gain access to a more extensive selection of suppliers and manufacturers than they would if they limited themselves to a local supply chain. You can see the endless options available for yourself on online B2B marketplaces like Alibaba or IndiaMart.
As a result, businesses can select the highest-quality suppliers, labour, and products in the world. They can also find materials, products, and manufacturing facilities that aren’t available domestically.
Perhaps the most critical advantage of global supply chain networks is the many chances to save money. More sourcing options means more opportunities to cut costs, ensuring economic viability and increasing margins.
This may seem counterintuitive at first – surely, moving goods around the world costs more than keeping things local? When it comes to the total shipping and distribution costs, this may be true. However, savings on sourcing, manufacturing, and labour can easily outweigh increased shipping and distribution costs.
3. New markets
Another critical benefit of global supply chain networks is that they create opportunities to expand your business internationally.
For example, say that your company sells products in Europe, but has a presence in China to oversee product sourcing and manufacturing. In this instance, it would be relatively easy to start selling your products in China and other south-east Asian countries.
4. Risk mitigation
As noted above, global supply chains can expose companies to additional risks. However, the opposite is also true.
If you use a domestic supply chain, all of your eggs are in one basket – your country’s basket, that is. If there was a natural disaster or economic recession, it’s possible that your entire business could ground to a halt.
However, if you were to position each of your global supply chain stages in different countries, the diversification can help minimise the effect of local interruptions.
Plus, it’s likely that you would already have connections and relationships with alternative entities in other countries. So, should disaster strike, you would be in a better position to redirect your supply chain and keep the company turning a profit.
5. Opportunities to learn
A surprising benefit of global supply chain networks is their effect on learning and development.
Companies operating globally can learn valuable lessons for different business cultures, practices, and perspectives.
Plus, innovative new practices and processes that haven’t reached your home country can quickly find their way into the global supply chain, providing another competitive advantage over companies using a local supply chain.
Summary: Global supply chain management challenges
Global supply chain management involves administering and directing many different entities to source materials, manufacture products, and distribute them to customers.
Nowadays, supply chains are working furiously to deliver goods and services faster, cheaper, and with less waste than competitors – all while maintaining quality.
In summary, here are 10 top supply chain challenges to overcome:
- Cash flow
- Lead times
- Data management
- Exposure to risk
- Accountability and compliance
- Quality control and defects
- Language barriers
- Time zones
- Exchange rate and foreign transaction costs
Remember, although global supply chains present several complex challenges, they also provide compelling advantages, such as more sourcing options, lower labour costs, and opportunities to expand internationally.
So, consider expanding your company internationally to harness these benefits and propel your company to success.