CHAPTER 7-GLOBAL SUPPLY CHAIN

DEFINITION

A global supply chain is the worldwide system a business uses to produce

products or services.
A global supply chain refers to an international network of supply chain
components. These include suppliers, manufacturers, and logistics. Global supply
chain management relies on four areas of focus. These include:
1. Marketing
2. Supply Management
3. Logistics Management
4. Operations Management
Marketing refers to aspects concerning customers and competitors. To develop a
global supply chain you need to consider the location of your target markets. You
also need to consider the presence of competitors in those locations.
Supply management concerns the availability of raw materials for manufacturing.
It also concerns the availability of manufacturing resources. These include space,
equipment, labor, and so on. In supply management, you also need to consider
the relative cost of sourcing and manufacturing products in different markets.
Logistics management refers to the storage and transportation of goods. Global
logistics and supply chain management requires you to consider several factors.
These include international trade regulations, shipping costs, storage resources,
labor charges, and so on.
Operations management refers to the management of supply chain processes in
different countries. Global operations and supply chain management require
sourcing, process management, labor management, equipment management
and so on.

Global Supply Chain Benefits

The global supply chain is important as it creates business efficiencies and cost
savings. By cutting costs on product development through less expensive labor,
technology, or resources, businesses have greater capability to expand and enter
new markets.
Amongst the benefits of a global supply chain is lowered costs. At first glance, you
might not think going global with a supply chain 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, you’re doing business with.
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.
Despite the risks and challenges, companies still thrive to achieve a streamlined
global supply chain. This is because a global supply chain also has a lot of
advantages
1.Multinational Market
A global supply chain is crucial for targeting customers in different countries. You
can sell more products and expand your operations. This also allows you to
capitalize on different opportunities that might be missing in a given country.
2. Lower Costs-If you are selling more products, you also need to produce a larger
volume. According to economies of scale , a greater volume can help you reduce
costs. You can buy raw materials in bulk to get a lower price per unit. Similarly, you
can also reduce the cost of transportation by shipping larger volumes. In a global
supply chain, you can also expand manufacturing operations in the target market.
This way you can reduce the distance between the source of production and the
customer location. Hence, you have to save money on logistics.
3. Supplier Diversity
A global supply chain also brings the opportunity to diversify your source of
supply. You can source your raw materials from different countries. This will
protect you against unforeseen supply shortages in one country.
4. Demand Management
A global supply chain gives you the opportunity to diversify your manufacturing
operations as well. If one of your manufacturing units falls short. Then you can
offset it by supplying products from another manufacturer. This will help you meet
market demands regardless of shortages in a country.
5. Risk Management
A global supply chain also serves as a hedge against environmental, social and
political upheavals. If your operations are damaged in one country, you can divert
your resources to another country. This will ensure that your company remains
operational regardless of problems in one nation. A global supply chain also brings
flexibility as you can diversify your assets in different markets.
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. The global supply chain works by leveraging different goods and
services from various countries to create a more cost-efficient product than if
produced in a single country.
There are many challenges in the global supply chain, which may include:
 Lack of equipment availability
 Labor constraints
 Geopolitical turmoil
 Environmental disasters
 Technological disruptions
 Subpar quality control
 Language barriers
 Delays in lead time and deliveries
A solid good financial plan 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.

Characteristics Found in Global Supply Chain

1. Global supply chains require long-distance shipping
The long distances between points in global supply connections require different
kinds of shipping techniques and systems. It also introduces different concerns
than local shipping. Lead times are longer, the equipment is different, and the
complexity is greater whether using air, sea, or rail routes between countries.
“Across thousands of miles of open ocean, there’s a lot that can go wrong
with any shipment.”
2. Global supply chains span language and cultural expectations. Although English
is the international language of trade, there are plenty of regional interactions
that happen in other tongues. There are also significant cultural communication
challenges to be addressed, where words and concepts may have different
meanings. Global supply chain management requires wrapping your head around
these challenges and making translations that get the point across anywhere in
the world.
3. Global supply chains deal with customs and international regulatory processes
Crossing borders means dealing with a whole new web of considerations in
regulation and legal requirements. Clearing customs can be such a significant
challenge that entire expediting firms exist to address it in some countries. In any
case, global supply chain managers must ensure their shipments meet several
different sets of legal requirements, some of which may conflict, at any given
port. They must also understand and comply with treaty-driven international
regulatory structures.
4.Global supply chains need international communications capabilities
When you start making connections a half-dozen time zones away, timing
becomes a problem in communication. The internet has all but done away with
the scratchy international undersea cable phone calls that global supply chain
managers used to endure.
5. Global supply chains are impacted by geo-political issues. Finally, the global
supply chain is wrapped up in larger issues of international relations. A perfectly
sensible, mutually advantageous supply connection between companies in two
countries can be completely up-ended when politicians in either place decide to
throw their weight around. International tensions, protectionism, and competition
can jam a wrench into the best-planned global supply chain.
WHAT IS SUPPLY CHAIN GLOBAL CYCLE?

A supply chain cycle is a series of operations and transactions that take place
between two stages of a supply chain. A global supply chain is a worldwide
system that businesses use to produce and deliver products or services, and
it involves multiple stages and cycles:

 Procurement: The process of acquiring raw materials

 Production: The process of creating the product

 Assembly: The process of putting the product together

 Shipping: The process of transporting the product

 Customer delivery: The process of delivering the product to the customer

  Customer order cycle: The process of processing, preparing, and shipping
orders
The global supply chain cycle typically starts with suppliers who provide
products or raw materials to the warehouses or distribution centers. From
there, the products are transported by transporters such as trucks, cargo
ships, or airplanes to the customers.
 Replenishment cycle: The process of re-supplying outlets from distribution
centers and wholesalers

 Manufacturing cycle: The process of scheduling production based on demand

from distributors

A global supply chain can involve many stakeholders, including distributors,

manufacturers, and overseas suppliers. Global supply chains can span
language and cultural expectations, so companies need to be able to address
these challenges and make translations that get the point across.

. The Supply Chain and its Cycles

The Supply Chain and its Cycles

A simplistic representation of a supply chain involves a sequence of
five stages, from suppliers to the final customer. Each of these stages
has its own cycle, which is a sequence of operations and transactions
taking place between two stages.

A customer order cycle takes place when orders are processed,

prepared, and shipped. For retail, the customer is often picking orders
from the store inventory (shelves), which represents the point of final

demand. In a pull logistic The Supply Chain and

its Cycles

The Supply Chain and its Cycles

A simplistic representation of a supply chain involves a sequence of

five stages, from suppliers to the final customer. Each of these stages
has its own cycle, which is a sequence of operations and transactions
taking place between two stages.

 A customer order cycle takes place when orders are

processed, prepared, and shipped. For retail, the customer is
often picking orders from the store inventory (shelves), which
represents the point of final demand.
 The replenishment cycle concerns the steps involved to re-
supply outlets from distribution centers and wholesalers. Each
outlet places orders to distributors based on its own fluctuation of
demand. It involves inventory that has already been
 manufactured and stored in different locations and parts of the
supply chain.
 The manufacturing cycle concerns the scheduling of
production in light of the demand from distributors.
 The procurement cycle involves the scheduling of the
components required in the manufacturing of a good.

 s system

The frequency of the cycles varies, which is reflected in their

respective inventory levels. Usually, retailers have significant
fluctuations in their

inventory levels since stores only carry a limited amount of inventory

(on

shelves and in the limited back store area). Once the inventory reaches
a

critical level, a new inventory is ordered from the distributor, which

triggers a replenishment cycle. Since distributors have a higher level of

inventory, the replenishment cycle tends to fluctuate less. This is even

more so for manufacturers since they tend to have a relatively stable

output due to the fixed capabilities of their equipment, labor, and tools.

Still, flexible manufacturing systems are able to accommodate higher

fluctuations.

Five Components of Supply Chain Management

1. Planning and Analysis

You can’t put a solid plan into motion without proper planning. Supply
chain

management begins with crafting a thoughtful strategy that’s built

around
identifying and studying a company’s current and future needs.

A good plan consists of strategies aimed at:

 Negotiating supply and demand

 Assembling and organizing the resources, people, and materials

required

to meet a company’s needs

 Minimizing operating costs

 Streamlining operations

There are several steps within the planning and analysis component of
supply

chain management:

 Demand Planning: The planning process considers supply and

demand,

with most companies kickstarting the process with demand planning –

determining supply and demand based on historical data, projected

sales,

market conditions, and other factors. The information gleaned through

demand planning is passed down to all teams within the supply chain,
who

then coordinate their efforts to achieve an organizational goal.

Demand planning serves as the foundation off which all other supply
chain

processes operate. Much of today’s demand planning is accomplished

using advanced technologies like AI and machine learning that apply

real-
time data, historical sales, and market conditions to make accurate

predictions.

 Supply Planning: Once supply and demand are determined, supply

chain

management professionals must begin creating the strategy that will

put

the plan into motion.

Just a small sampling of the issues considered during the supply

planning

stage include: What raw materials are needed? Where will the
materials be

sourced? How and where will manufacturing take place? What

equipment

is needed to produce the product? Who will provide warehousing and

distributing activities, and how will the product make its way to the

supplier, retailer, or consumer?

 Production Planning: What does the production of the product look

like?

How will the company produce what is needed without creating an

inventory surplus?

 Sales and Operation Planning: During the sales and operations

planning

stage, the sales and marketing teams come together to ensure their
plans

match operational objectives.

2. Sourcing (Procurement)
Sourcing is often seen as one of the most critical components of the

supply chain management process, as it is where some of the most

significant cost savings can be achieved. Sourcing encompasses the

entire procurement process , which includes selecting suppliers,

ordering,

receiving, and managing inventory, and then authorizing supplier

payments.

For many companies, the sourcing process is highly complex, with

large

organizations sometimes working with thousands of suppliers. For

example,

Starbucks works with some 300,000 coffee growers around the world
to source

its coffee beans.

Supply chain management professionals identify suppliers that meet a

company’s needs and negotiate contracts to receive the necessary

goods. They

also focus much of their efforts on nurturing supplier relationships and

maintaining a diversified network of suppliers to mitigate risks and

quickly

remediate issues that could affect supply shortages.

3. Manufacturing and Production (Operations)

The manufacturing and production component of supply chain

management is where the magic happens, when planning and sourcing

efforts come to fruition to allow the company to transform raw

materials and
components into the finished product.

During this central stage of the supply chain process, it’s the
responsibility of

supply chain management professionals to oversee all activities

associated

with the in-house production of goods, including product testing,

production

output, packaging, inventory optimization, and quality assurance.

Supply

chain managers are also on the lookout for any issues and for
opportunities

to fine-tune the sourcing or manufacturing process.

4.Distribution (Transportation, Warehousing, & Logistics)

The distribution stage of the supply chain management process

encompasses

the activities associated with getting the finished product to

consumers.

At this stage, supply chain management professionals (1) determine

the logistics

of how the product will move efficiently to the next step in the supply
chain; (2)

implement formal distribution plans; and (3) work with distribution

partners to

move the finished product through one or more distribution channels:

 Direct sales – Manufacturers sell directly to the consumer.

 Wholesale – Wholesalers purchase products in bulk from
manufacturers

to resell to retailers.

 Brokerage – Manufacturers use brokers to act as middlemen to

negotiate

sales with retailers.

 Dual distribution – Some manufacturers and vendors employ

different

distribution channels for getting their products into customer’s hands.

This

could mean B2B sales, selling to wholesalers, and directly to

consumers.

The distribution component of supply chain management explores how

inventory will make its way into the hands of wholesalers, distributors,
and retailers. Inventory and warehousing management software and
leading-edge

technologies allow supply chain managers to better plan the

distribution process and put plans in motion that make it more resilient
and reliable.

5. Returning (Reverse Logistics)

Also often referred to as reverse logistics, the returning component of

supply

chain management is the process of receiving returned products and

the

protocol for assigning refunds. Returns may be associated with product

recalls,

damaged or defective products, or simply consumer dissatisfaction.

This stage has the potential to create a ripple effect throughout the
entire supply
chain, particularly when dealing with products that don’t meet quality
or safety

standards. Strong supply chain management leaders during this stage

work to

identify product issues and coordinate the actions necessary to

remediate them.

Global Supply Chain Issues

Owing to distance and international borders, a company might face

a variety of global supply chain issues. Some of the biggest problems

include:

1. Long Lead Times

2. Supply Chain Visibility

3. Shipment Delays

4. Fluctuating Prices

5. Environmental Uncertainties

6. Regional Compliance

7. International Trade Compliance

8. Compliance and Accountability

9. Quality Control

10. Transactional Costs

What Is a Global Value Chain?

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.

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 as one entity. 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.