Academic Team Leader and Senior Lecturer
Regenesys Business School
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- Why the Global Value chain is important for growth - July 21, 2022
- Case Study: Understanding Break-Even Analysis - July 21, 2022
A large number of companies were drastically affected by the global supply chain crisis of 2021. Supply chains are experiencing extreme bottle necks which are congestion and blockages in the production system. This has had a great effect on a variety of sectors, services and goods ranging from shortage of electronics and auto to difficulties in the supplies of meat, medicine and household products. It is said the global supply chain could potentially get worse before it gets better.
Even though the global economic recovery is gathering steam, it is increasing apparent how it will be obstructed by supply-chain disruptions that are showing up at all corners. Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand for being stuck at home have been the combination for a perfect storm which global production will be hampered due to deliveries not being able to be made on time, cost and prices will rise and the GDP growth worldwide will not be as robust as a result.
The pandemic has only help highlight how interconnected, and how easily destabilized the global supply chain can be. The pandemic has also highlighted the deep insubstantialities in the supply chain networks, with disruption in one part of the chain having a ripple-down effect on all parts of the supply chain, from the manufacturers to suppliers and distributors with disruptions ultimately affecting consumers and economic growth.
We will discuss only two reasons that have caused the current global supply chain crisis would be that companies had not implemented a mature risk management system to forecast or pre-empted what might happen with any disruption to the global supply chain and the companies did not fully understand all the layers of their supply chain and how it might tie into one another.
Risk management works hand in hand with the seven-supply chain and risk enablers for maturity. These seven factors which allow for stronger capabilities in both the supply chain and the risk management. You would need to match the enablers to assess how mature or immature the company’s capabilities are. The even enablers are; risk governance; flexibility and redundancy in product, network and process architectures; Upstream and downstream supply chain integration; alignment and integration between internal business functions; complexity management or rationalisation and Data, models and analytics.
Many companies lacked risk governance in the global supply chain crisis of 2021. Risk governance would be the presence of appropriate risk management structures, processes and culture. Companies did not invest heavily in becoming a mature company which would have a risk team set up to investigate and plan to tray and mitigate any disruption that may arise. This team would be set up to find the best and affordable way as to if the disruption would arise that would have a plan, not to allow it disrupt production or the supply chain of the company. They would find ways to allow for the company to rise back up at a faster pace, rather than to drown in what may seem to not look like a fruitful experience.
They would have an innovative team ready to tackle the task at hand and find numerous ways to overcome the disruption. In conjunction with the risk governance, companies were not as flexible as they hope to take on the pandemic. The companies had not invested in understanding the flexibility of their supply chains. They did not break down their supply chains down to understanding how everything was interlinked. They needed to deep dive into the supply chain of their supplier to understand where they could mitigate the risk of anything that may arise.
Should they have invested in the flexibility of the company, they would have been much more resilient to disruptions, and having a flexible company allows for them to adopt to change much quicker, which would mean they would be able to better respond to the demand changes that came with the global supply chain crisis of 2021. It was note that when companies invested in flexibility, responsiveness and customer services, these companies would demonstrate a higher performance resilience compared to companies with strategies emphasised on cost and efficiency.
As the CEO of a Large Logistics and supply chain management organization, I would try and focus most of my efforts on the resilience of the organization in conjunction with understanding my full supply chain in detail. I would firstly invest in a risk management team. By investing in this I would require them to be a team of innovators. They should be responsible for monitoring what happens in detail within the supply chain levels, understanding the suppliers and their supply chain management systems. This will help mitigate any risk that may arise and maybe notice if suppliers’ source from the same supplier and maybe allowing us to gain better relationships with sources.
This may also consist of building great relationships with my suppliers. I would also take the time to understand which of the organisations supplier(s) that may have become redundant. I would require them to understand and advise he organisations management on the cost that would arise from taking on any of their suggested plans that they might have, which would be pertaining to a disruption in the supply chain. I would like to find ways to grow the business not in the Global supply chain but in the local supply chain too, as to foresee if another disruption may occur that he organisations may still be able to operate in the local supply chain at a high level of operation.
The organisations would also look into diversifying my staff, by investing in adequate training and provide continuous development to allow to feed into new ideas to better the supply chain. It’s always the people doing the work that might realise how different ways of working may make the tasks faster or more efficient. This may also require that one would need to invest in greater technology systems. With the vast variety in the growing technology system it allows for business to have real-time information and analyse it immediately reducing the risks of delivery delays or unsatisfied customers. Items of technology that could be embraced would be The Internet of things. This is the networks of low-cost sensors and actuators for data collection, to receive the real time data. It will also allow for real-time error detection, reaction and reduction, and employee security and monitoring, I would need to invest in flexibility in my business, understanding it is not free but once you invest and take the risk you can only hope to see the rewards of it paying off.
There are some great changes that are affecting the globalization of the supply chain, which would include, more investments by U.S industries in non-U.S areas, which would allow for increased international spending activity by major U.S corporations, mergers, acquisition, and joint ventures involving companies from different countries. This would link many more organizations across the globe and would allow for more organizations making purchasing and supply decision based on total cost of ownership and value added. This could allow for a rise in global complexities.
As for if you sourcing from multiple countries it would bring a number of considerations that would not be encountered domestically. Some of these complexities would include; currency exchange and risk; countertrade opportunities and requirements; varying in laws and jurisdictional questions; cultural differences and language differences are among the few which I think is important. With this being said there are also other challenges and barriers to building global supply chains.
Due to the varying of environments that you come upon internationally, the challenges and barriers which are involved in building a global supply chain consist of, uncertain political stability, different government agendas; lack of infrastructure in some countries; lack of critical market mass in particular countries and high transaction costs due to varying business environments to mention a few. Effective development of the global supply chain is focused on the redefining and adapting organizational strategies to provide competitive advantage.
Supply management design efforts should commence within the context of the organization’s corporate DNA. Global supply chains should address the stakeholder value, align with business unit objectives, and enhance safety, diversity, local business development and customer service needs. Change management should support such efforts. Supply chains should be “world class”.
References:
- Supply chain and risk management. United States: PWC.
David Simchi-Levi, Phil Kaminsky, Edith Simchi-Levi
(2008). Designing and Managing The Supply Chain:
Concepts, Strategies and Case Studies,3rd Edition.
McGraw-Hill Irwin;
Kauffman, R., 2014. Building Global Supply Chains: A Value Stream Approach.
[ebook] Nashville, TN. Available at:
https://www.researchgate.net/publication/237497068_Global_Supply_Chains_Step_
by_Step_How_to_Develop;
Ellyatt, H., 2021. Supply chain chaos is already hitting global growth. And it’s about
to get worse. [online] CNBC. Available at: https://www.cnbc.com/2021/10/18/supply-
chain-chaos-is-hitting-global-growth-and-could-get-worse.html
Dr Dennis Mark Laxton
DBA, MBL, MBA, BTech Academic Team Leader and Senior Lecturer Regenesys Business School
