Global supply chain management

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In commerce, global supply-chain management is defined as the distribution of goods and services throughout a trans-national companies' global network to maximize profit and minimize waste. [1] Essentially, global supply chain-management is the same as supply-chain management, but it focuses on companies and organizations that are trans-national.

Contents

Global supply-chain management has six main areas of concentration: logistics management, competitor orientation, customer orientation, supply-chain coordination, supply management, and operations management. [2] These six areas of concentration can be divided into four main areas: marketing, logistics, supply management, and operations management. [2] 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).

Global supply-chain management can be impacted by several factors 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. [3] 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.

Global logistics and supply chain management are critical components of international business operations, ensuring the seamless flow of goods, information, and services across borders. This field involves the strategic planning, coordination, and optimization of all activities related to sourcing, production, distribution, and logistics on a global scale. With the increasing complexity of global markets and the need for companies to operate efficiently in an interconnected world, understanding and mastering global logistics and supply chain management is essential.

One of the key aspects of global logistics is the efficient movement of goods across international borders. This includes managing transportation methods, customs regulations, and trade compliance to ensure timely and cost-effective delivery. International trade agreements and regulations, such as Incoterms and customs duties, play a crucial role in shaping global logistics strategies.

Supply chain management in a global context extends beyond logistics and encompasses the entire flow of products and information from suppliers to end customers. This involves coordinating activities with suppliers, manufacturers, distributors, and retailers in different countries. Effective supply chain management helps reduce lead times, minimize inventory costs, and enhance overall customer satisfaction.

In the era of globalization, technology plays a pivotal role in optimizing global logistics and supply chains. Businesses utilize advanced software, data analytics, and IoT (Internet of Things) solutions to track shipments, manage inventory, and forecast demand accurately.

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. [4] 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. [4] Demand-side risk is a category that includes risks that pertain to the availability of the finished product. [4] Depending on the supply chain, a manager may choose to minimize or take on these risks. [4]

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.

Areas of concentration

Marketing

Marketing should be emphasized by global supply chain managers to create customer value, satisfaction, and loyalty. Customer value, satisfaction, and loyalty lead to improved profit margins, which in turn leads to overall corporate growth. [5] Managers need to think about their strategies and the implication of the strategy on the entire supply chain. One market strategy that is commonly used among businesses with global supply chains is the customer perspective strategy.

Taking a customer perspective towards marketing strategy means focusing mainly on customers. This perspective focuses on understanding the complexity of customer values. This perspective involves understanding and how a customer defines and develops their values. By understanding how a customer sets their values, a company is able to make changes to appeal to the customer base's values which in turn leads to greater profit. [5]

There are four common and critical challenges that managers face when attempting to design and implement a marketing strategy that best relates to customer values. The first issue that managers face is the challenge of understanding exactly what customers value in a global supply chain. [5] Understanding customer values in a global supply chain focuses on the task of identifying what supply streams customers value most.

The second challenge is having to understand the constant changes in customer values throughout global supply chains. [5] Since customers are constantly changing what they value, staying ahead of the trend and attempting to predict changing values is increasingly difficult. The third challenge is having to deliver values in a new environment that has never seen this level of marketplace. [5] The global market is becoming increasingly prevalent which companies are taking advantage of, therefore the challenge of attempting to deliver values in a country/region that has never been exposed to a marketplace such as this before arises.

The final challenge is creating and staying committed to the solutions designed to address these issues. [5] Solutions to these challenges are implemented and it is a challenge within itself to stick to these solutions especially as businesses have increased emphasis on cost reduction efforts.

Logistics

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. [6] 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. [6]

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. [6]

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. [6]

Supply management

Supply management deals with the development and management of the critical business and supplier relationship. [7] Some companies will use supply chain management software to help manage the flow of products and information. [8] Notable companies that provide supply management services include Oracle, Epicor, Infor, NetSuite and IBM. [9] [10] As the market becomes progressively global, the strategy of outsourcing suppliers is increasingly used. Outsourcing suppliers has several benefits for a business if they can effectively develop the relationship. In 2020 the global supply chain management market was valued at $18.7 million and was projected to reach $52.6 million by 2030. [10]

Management theories

The 21st-century logistics framework

Closs and Mollenkopf's "21st-century logistics framework" is a global supply-chain management theory that was developed at Michigan State University and was introduced to the business world in 1999. [11] The framework identifies six business competencies that are necessary to operate a global supply chain, with multiple underlying capabilities for each competency which influence management decisions. The six competencies are:

The capabilities that are attached the competency of customer integration are: segmental focus, relevancy, responsiveness, and flexibility. Segmental focus refers to the ability to develop customer aimed programs that are specifically designed to achieve maximum customer success. Relevancy refers to the ability to maintain and modify customer focuses to reflect the constant changing expectations. Responsiveness refers to the ability to accommodate unique and unforeseen customer requests/requirements. Flexibility refers to the ability to appropriately adapt to any unexpected circumstance.

Cross-functional unification, standardization, simplification, and compliance are the underlying capabilities that are associated with the internal integration competency. Cross-functional unification refers to the ability to put potential co-operative activities into manageable operational processes. Standardization refers to the ability to implement policies/procedures that address any concurrent operations. Simplification refers to the ability to identify, adopt, implement, and improve the best possible business practices. Compliance refers to the ability to follow any established policies.

The capabilities that are related to material/service supplier integration are: strategic alignment, operational fusion, financial linkage, and supplier management. The ability to develop a corporate culture or common vision that create a shared responsibility is defined as strategic alignment. The ability to fuse systems together to reduce redundancy is defined as operational fusion. Financial linkage refers to ability to join financial ventures with suppliers to achieve common goals. Supplier management refers to the ability to extend management to include the hierarchical structure of suppliers.

Information management, internal communication, connectivity, and collaborative forecasting and planning are the capabilities that encompassed by technology and planning integration. The ability to use seamless transactions across the entire chain to allocate resources throughout the chain is called information management. Internal communication refers to the ability to communicate within the business in appropriate manner. The ability to communicate and exchange information between the business and the external supply chain partner is called connectivity. Collaborative forecasting and planning refers to the ability to collaborate with customers to identify and develop shared visions.

The capabilities that underlie measurement integration are: functional assessment, comprehensive metrics, and financial impact. Functional assessment refers to the ability to develop and implement an appropriate performance measurement tool. Comprehensive metrics refers to the ability to implement cross-business performance standards. Financial impact refers to the direct link between overall supply chain performance and the results of the financial measurement.

The capabilities that underlie relationship integration are: role specificity, guidelines, information sharing, and gain/risk sharing. Role specificity refers to the ability to clearly define leadership and establish a set of shared and individual responsibilities. Guidelines refers to the ability to create and implement policies/rules that govern everyday interactions. Information sharing refers to the willingness to share important information (often including financial, technical, or strategic information) throughout the supply chain. Gain/risk sharing refers to the appropriately divide and allocate rewards/penalties.

The 21st-century logistics framework allows managers to identify and implement the most important underlying capabilities that are encompassed in the six business competencies. The framework gives managers the freedom to decide what they believe to be the most important capabilities that need to be implemented to run a successful global supply chain. [11]

Human collaboration theory

The human collaboration theory suggests that there is strong evidence to prove that investment in supply-chain management have the largest impacts when they focus on enabling supply chain collaboration. This management theory focuses on the manager's ability to invest in and promote human collaboration between employees throughout the global supply chain. [12]

Human collaboration is defined as the use of skills through harmonization of individuals, teams and organizations to achieve greater things not achievable by an individual person. [12] The human collaboration theory/framework lays out four key components. The first component deals with the forces that drive change, the second focuses on people-technology-process assets that create network collaboration, the third deals with resisting forces which encourage people to resist collaboration, and the fourth component looks at the desired collaboration performance. [12] The theory states that to implement and operate a successful global supply chain, a manager must understand and use these components.

The theory states that to implement and operate the best collaboration system, a manager must build trust between the different players of the chain (supplier and manufacturer), establish a culture which supports decision making and work, implement a proper reward system, and use synergistic activities.

According to the theory's creators, a manager must follow four steps to transform their network into a more collaborative network. The first step is to recognize that to be competitive the company will require innovations which can be proposed by people outside the corporate boundary and therefore to access these people they need to be more collaborative with external partners. They then must alter their views of achieving collaboration by acknowledging the different types of collaboration (transactional, co-operative, coordinated, synchronized). Next, a manager must develop a collaborative plan that achieve the goals he/she sets out to achieve. Finally a manager must develop the right controls to ensure the goals/mission can be met. If a manager follows the recommendations made by this theory, then they will have implemented a proper global supply chain that focuses on human collaboration which in turn will yield better results.

International regulations

Role of government

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. [13]

Recently, there has been a steady incline of governments creating and implementing regulations to promote green supply chains. [13]

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.

Role of the United Nations

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. [14] 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.

Role of business organisations

SEDEX, the Supplier Ethical Data Exchange, is a well-known nonprofit membership organization with over 60,000 members, [15] dedicated to driving improvements in responsible and ethical business practices in global supply chains. [16] SEDEX launched a reporting tool in 2019 called "Sedex Analytics", which "allows businesses to drill down on site-specific issues that can affect workers" within their global supply chains. [17]

Risks of operation

Supply-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. [4] Several issues can arise from operating a global supply chain. Common supply side risks include the fact that it takes a long time to receive products from around the world, and that 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 not 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. [4] 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.

Related Research Articles

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Logistics</span> Management of the flow of resources

Logistics is a part of supply chain management that deals with the efficient forward and reverse flow of goods, services, and related information from the point of origin to the point of consumption according to the needs of customers. Logistics management is a component that holds the supply chain together. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

Marketing management is the organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of a firm's marketing resources and activities.

<span class="mw-page-title-main">Performance indicator</span> Measurement that evaluates the success of an organization

A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.

A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations.

Reverse logistics encompasses all operations related to the upstream movement of products and materials. It is "the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics." Growing green concerns and advancement of green supply chain management concepts and practices make it all the more relevant. The number of publications on the topic of reverse logistics have increased significantly over the past two decades. The first use of the term "reverse logistics" in a publication was by James R. Stock in a White Paper titled "Reverse Logistics," published by the Council of Logistics Management in 1992. The concept was further refined in subsequent publications by Stock (1998) in another Council of Logistics Management book, titled Development and Implementation of Reverse Logistics Programs, and by Rogers and Tibben-Lembke (1999) in a book published by the Reverse Logistics Association titled Going Backwards: Reverse Logistics Trends and Practices. The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse logistics, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.

A supply network is a pattern of temporal and spatial processes carried out at facility nodes and over distribution links, which adds value for customers through the manufacturing and delivery of products. It comprises the general state of business affairs in which all kinds of material are transformed and moved between various value-added points to maximize the value added for customers. In the semiconductor industry, for example, work-in-process moves from fabrication to assembly, and then to the test house. The term "supply network" refers to the high-tech phenomenon of contract manufacturing where the brand owner does not touch the product. Instead, she coordinates with contract manufacturers and component suppliers who ship components to the brand owner. This business practice requires the brand owner to stay in touch with multiple parties or "network" at once.

Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management.

The term demand chain has been used in a business and management context as contrasting terminology alongside, or in place of, "supply chain". Madhani suggests that the demand chain "comprises all the demand processes necessary to understand, create, and stimulate customer demand". Cranfield School of Management academic Martin Christopher has suggested that "ideally the supply chain should become a demand chain", explaining that ideally all product logistics and processing should occur "in response to a known customer requirement".

<span class="mw-page-title-main">Demand-chain management</span> Management of relationships between suppliers &customers to deliver best value to customer

Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain management but with special regard to the customers.

<span class="mw-page-title-main">Build to order</span> Production approach

Build to Order is a production approach where products are not built until a confirmed order for products is received. Thus, the end consumer determines the time and number of produced products. The ordered product is customized, meeting the design requirements of an individual, organization or business. Such production orders can be generated manually, or through inventory/production management programs. BTO is the oldest style of order fulfillment and is the most appropriate approach used for highly customized or low volume products. Industries with expensive inventory use this production approach. Moreover, "Made to order" products are common in the food service industry, such as at restaurants.

Industrial market segmentation is a scheme for categorizing industrial and business customers to guide strategic and tactical decision-making. Government agencies and industry associations use standardized segmentation schemes for statistical surveys. Most businesses create their own segmentation scheme to meet their particular needs. Industrial market segmentation is important in sales and marketing.

<span class="mw-page-title-main">Sales and operations planning</span> Integrated business management process

Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment, and synchronization among all organization functions. The S&OP process includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan, and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the context. Short product life cycles and high demand volatility require a tighter S&OP than steadily consumed products. Done well, the S&OP process also enables effective supply chain management.

Supply-chain sustainability is the impact a company’s supply chain can make in promoting human rights, fair labor practices, environmental progress and anti-corruption policies. There is a growing need for integrating sustainable choices into supply-chain management. An increasing concern for sustainability is transforming how companies approach business. Whether motivated by their customers, corporate values or business opportunity, traditional priorities such as quality, efficiency and cost regularly compete for attention with concerns such as working conditions and environmental impact. A sustainable supply chain seizes value chain opportunities and offers significant competitive advantages for early adopters and process innovators.

Third-party logistics is an organization's long term commitment of outsourcing its distribution services to third-party logistics businesses.

<span class="mw-page-title-main">Supply chain finance</span>

Supply chain financing is a form of financial transaction wherein a third party facilitates an exchange by financing the supplier on the customer's behalf. The term also refers to the techniques and practices used by banks and other financial institutions to manage the capital invested into the supply chain and reduce risk for the parties involved.

Category management is an approach to the organisation of purchasing within a business organisation. Applying category management to purchasing activity benefits organisations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers. It is a strategic approach which focuses on the vast majority of organisational spend. If applied effectively throughout an entire organisation, the results can be significantly greater than traditional transactional based purchasing negotiations, however the discipline of category management is sorely misunderstood.

Global supply-chain governance (SCG) is a term that originated around the mid-2000. It is a governing system of rules, structures and institutions that guide, control, and lead supply chains, through policies and regulations, with the goal of creating greater efficiency. Governing systems are put into place by different actors, such as international organizations and individual firms, within the global supply chain. The global supply chain is the process of transforming raw materials into an end product, which often occurs in several different countries, moving products and services from producers to consumers. Through increased globalization and international codependency, this process is expanding. This has led to the idea that there should be governing system in place to help guide these global supply chains to perform more efficiently.

References

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  2. 1 2 Tomas, G; Hult, M (2003). "Global supply chain management: An Integration of Scholarly Thoughts". Industrial Marketing Management. 33: 3–5. doi:10.1016/j.indmarman.2003.08.003.
  3. ↑ McKinnon, A (2012). The role of government in promoting green logistics. London, UK: Kogan Page Limited. pp. 347–364.
  4. 1 2 3 4 5 6 Manuj, Ila; Esper, Terry L.; Stank, Theodore P. (2014). "Supply Chain Risk Management Approaches Under Different Conditions of Risk". Journal of Business Logistics. 35 (3): 241–258. doi: 10.1111/jbl.12051 .
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  9. ↑ "Top Supply Chain Management Software - 2023 Reviews". www.softwareadvice.com. Retrieved 2 June 2023.
  10. 1 2 "Supply Chain Management Software Market Statistics | 2030". Allied Market Research. Retrieved 17 March 2022.
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  12. 1 2 3 Saban, A.K.; Mawhinney, J (2012). Customer-Oriented Global Supply Chains: Concepts for Effective Management. Hershey, Pennsylvania: Information Science Reference. pp. 208–223.
  13. 1 2 McKinnon, A (2012). Green Logistics: Improving the Environmental of Logistics. London, United Kingdom: Kogan Page Limited. pp. 347–364.
  14. ↑ United Nations Global Compact. "Supply Chain Sustainability: A Practical Guide for Continuous Improvement" (PDF). United Nations.
  15. ↑ British Standards Institution (BSI), Sedex (Supplier Ethical Data Exchange), accessed 24 August 2023
  16. ↑ "Members | Sedex". Sedex. Retrieved 6 June 2017.
  17. ↑ SupplyChainBrain, Sedex Launches New Reporting Tool for Supply Chain Transparency, published 19 September 2019, accessed 24 August 2023
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