With the advent of globalization, managing supply chain activities has become more complex. Today a company operating in the United States may have its manufacturing facilities in China, Mexico or Taiwan and its customers throughout the world. Many companies in order to manage its global operations may outsource their supply chain activities to third-party organizations around the globe. Outsourcing reduces the supply chain operating cost but when not managed effectively proves otherwise.
Globalization has dramatically changed how manufacturers operate, offering an opportunity to reach new customers in new markets while at the same time exposing firms to greater competition. Meanwhile, raw materials and supplier relationships must now be managed on a global scale. Just as there are benefits and costs of globalization, there are similar pros and cons of a global supply chain. In particular, companies need to manage the related risks.
Benefits of a Globalized Supply Chain
· Expanded sourcing opportunities: A world market offers businesses opportunities to secure a diverse selection of workers, materials, and products. This larger selection of goods and services often means the opportunity to select higher-quality or lower-cost options.
· The opportunity to reach new customers in new markets: Just as globalization offers more materials and laborers, it also offers new customers in new locations with new needs.
· More room to grow: New technologies and a shrinking globe mean that it is easier for companies to grow generally: to produce more, offer more, and sell more. Expanding borders also means expanding businesses and corporations.
· More opportunities to save money: Globalization’s biggest benefit is that increases options: options for source materials, options for workers, and options for transportation. More options mean more chances to save on spending and increase profits.
What’s changing? Well, everything. New regulations, increased buyer expectations, shorter product lifecycles, fluctuations in demand, new market entrants, more ethical supplier management, poor visibility of globalized supply chains — all these things, and more, are testing the limits of the traditional supply chain model. The simple truth is that the way things used to be done, and the solutions that enabled it, are no longer up to the job.
Here is the list for key issues to think about in terms of the global economy and issues to be faced:
· Anti-globalization. There is an influx of refugees due to strife, lack of opportunity and lack of water. More than 65M people were forcibly displaced in 2016 and 16M have not found homes. This administration and others across the world have not been proactive in addressing this massive shift in the global population. What is remarkable is that 53% come from Somalia, Syria, and Afghanistan.
· Labor arbitrage- labor costs and mfg. costs are going up and labor in the supply chain is going to continue to be an issue.
Because of the mass migration and the anti-globalization issues, companies are finding it harder and harder to fill positions, and talent management is a big, big problem. One executive in another session from the service industry noted that part-time contingent labor is one of the biggest challenges, and he has had to revert to dropping the drug test for many positions, as they would simply go unfilled and impact customers!
· Tax cuts for big business is certainly imminent, but there is conflicting information. From a personal tax point, Government’s are proposing moving from 7 tax brackets to 3 – and maybe will move the top bracket from 40% to 33%. The 35% corporate tax could be 15-20% and could be a boon to companies.
· Slowdowns in the economic growth of Brazil, India, and China is having an impact on commodities, especially on agricultural commodities, due to demand decreases and increase of supply, which means that inventory is growing. Crude oil is a benchmark which was at a low of $29 in Jan 2016 – now around $50. Experts don’t expect oil to go over $60, and and to stabilize in the $51-73 range.
· Global climate change – whether you believe it or not – you can’t argue with the fact that something is happening! California has more water than they can deal with – while there are other places where water is becoming a problem.
· Natural disasters may be forcing some of the migration. Natural disasters are pushing people out – and health and economic issues as well as humanitarian needs for water, food, and basic medical care is exploding globally.
· Currency fluctuations, supply risk, Anti-American sentiment are all major issues that make it difficult to sell abroad. As we take a look at imports/exports, and environment uncertainty it is likely that supply chain designs will move more towards more local sourcing, driven not only by total cost of ownership, but even more so by global risk mitigation.
· The number one global issue is not about oil – it is about water. There isn’t enough of it. When someone from Coca-Cola says this, you better worry.
· Decision support systems – and big data continues to drive lots of activity – and in next 3 years, there will be more than 8 times more data through people’s phones.
So what does this mean for your business?
In the end, a global marketplace has been both a blessing and a curse, to an extent. While new markets have opened up, greater risk now exists, which could potentially impact the survivability of your company. And, as some of these risks could even compound with each other, it is now critical for manufacturers to increase their visibility into not only their own operations, but those of their suppliers. With this much risk in play, any system that can help mitigate excess risk is well worth the investment.