A global supply chain definition is pretty straightforward: It is the worldwide system that a business uses to produce products or services.
That sounds simple enough, yet a global supply chain can be anything but. There are so many facets that need to be in sync.
Employees—the information they need to keep the system running, the resources that they use—and even the tools businesses use to stay compliant with government regulations can be considered part of a global supply chain.
Global Supply Chain Benefits
One of the benefits of a global supply chain is lowered costs for businesses.
Granted, at first glance, you wouldn't think extending a supply chain around the planet would help a business bring down the price of their final product or service. (Freight and transportation obviously will always add numbers to the bottom line.) But many countries have lower production costs that make it attractive to expand a supply chain to other parts of the world.
You also may be able to bring down expenses by purchasing goods and services from a supplier when the dollar is stronger against the national currency of the country that you're doing business with.
But another benefit is that a global supply chain can make it easier to sell to customers around the world. If your company has outposts in the supply chain throughout, say, Asia and Europe, your business may find it easier to start selling to those parts of the world as well.
You’re also potentially spreading your risk by having a global supply chain. Let's say you didn't have a global supply chain, and your supply chain was relegated to one particular region. If that area had a severe natural disaster, you could see your entire business come to a halt for a few days, weeks or even longer, depending on how bad of a disaster we're talking.
Of course, you could argue that you're increasing your risks by having a global supply chain. Odds are, something will go wrong somewhere along the chain. But the better the supply chain management, the lower those risks can be.
What Does a Global Supply Chain Need to Succeed?
There are a lot of factors that come together to make a global supply chain successful, and it's almost impossible to pinpoint one as the most important.
Cash flow and a good financial steward is obviously vital. If your business doesn't have enough working capital and can't pay for its own infrastructure, it probably won't stay in business very long.
It's important to run the supply chain well so that you don't lose money on it. Daren Samuels is practice director of operations at Patina Solutions, which offers on-demand executives in all industries and is headquartered in Brookfield, Wisconsin. According to Samuels, a supply chain can consume up to 85 percent of a company's revenue.
“So getting it right is really important," he says.
Things such as managing waste and avoiding employee theft is also very important, so you want to have policies that prevent loss, says Mark Struss, practice director of manufacturing operations at Patina Solutions.
For instance, Struss says that if you have valuable components being made or stored in warehouses, your manufacturing plants may require using “only clear trash bags and, depending on the size and value of the components, lunch box inspections at clock out may make sense."
That may sound extreme, but hire the wrong people, and you could lose a lot of money over the years.
A clear plan for your logistics is also imperative. Especially if you're dealing in e-commerce, “it's critical for businesses to be able to reach as many customers as quickly—and cheaply—as possible," says Jake Rheude, vice president of marketing at Red Stag Fulfillment, a third-party logistics (3PL) company headquartered in Knoxville, Tennessee.
“We're in a very competitive industry, as there are lots of warehouses all over the country, placed strategically near urban centers to minimize delivery distance," Rheude says. “Just because you, the customer, got free shipping on that order from [a department store] doesn't mean shipping was actually free. So a major component of supply chains is to use 3PLs to help fill that cost gap by minimizing the resources sunk into moving orders from point A to point B."
Again, it all comes down to cost. A global supply chain needs to be as efficient as possible, so costs don't go out of control. For instance, say you produce too many goods, and they end up sitting in a warehouse for an extended period of time.
You can start to see how things could start to add up.
What Types of Business See the Most Success From Global Supply Chains?
Many manufacturing companies can benefit from a global supply chain, and certainly any business that wants to be an international force and sell to countries around the world is going to need a robust system for getting its products or services from Point A to Point B.
It's critical for businesses to be able to reach as many customers as quickly—and cheaply—as possible.
—Jake Rheude, vice president of marketing, Red Stag Fulfillment
Food and beverage, mining companies, oil and gas, electronics and the textile industries are just a few of the many that thrive with global supply chains. If your business produces a product to sell to the public on large scale, you may do well to have a global supply chain, if you don't have one already.
How Is a Global Supply Chain Related to Global Value Chains?
The term global value chain refers to an international supply chain of people and activities that go into creating and offering goods or services when the supply chain needs to be managed across different countries.
This, of course, sounds like the definition of a global supply chain.
The subtle difference is that a global supply chain generally is referred to when discussing the manufacturing and distribution steps. For example, you probably wouldn't include your research and development or marketing team when talking about your global supply chain. They add a lot of value, but you could probably produce or distribute your goods without them.
A global value chain, however, describes it all, and when you have a global supply chain, you need to be thinking about it all. Even your custodial service might be considered part of your global value chain, especially if your product or service is in the food or medical industries.
Basically, if a partner, vendor or supplier adds value to your business, and could hurt your supply chain if something broke down, then that's an important part of your global value chain—even if it's only indirectly part of the supply chain. And if you don't have the working capital or resources to quickly fix a problem that suddenly surfaces, you could quickly have a problem that doesn't go away any time soon.
But that's why it can be smart to think about a global value chain along with your global supply chain. If you place importance on every piece of the system that produces your goods or services, your business is less likely to be inefficient and run into trouble in the future.
There's a lot of value in thinking about a global value chain.
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