5. GLOBAL SUPPLY CHAIN MANAGEMENT
– A CRITICAL ANALYSIS
Supply chain is the management of flow of goods and services, ranging from procuring, storage and distribution of raw materials and finished goods to the customer, in the most organized and cost effective way (aelp.org.uk, 2013).The above concept applied on a global level to minimise cost and time of production and distribution to meet the increasing demands in commerce is called Global Supply Chain Management (GSCM) (Arntzen et al., 1995). As globalization of manufacturing started in mid 1990s, particularly with the growth of manufacturing industry in China, the Supply Chain concept got a widespread recognition. The advent of Global Supply Chain has proved to be a boon in various aspects such as improving customer service by providing cost effective services, minimising delays, optimal shipping options, extended sourcing opportunities, enlarged room to grow, higher operational efficiency, etc. However, in the recent times commercial world faces several risks in the Global Supply Chain (GSC). Hence, it is important for the organizations to adopt different strategies in order to mitigate the risks. This paper critically analyses these risks and explains the various strategies adopted to overcome these risks by quoting an example of a familiar organization.
As many organizations in market place are now relying on global supply chain after globalization, this has become a key factor in the progression of a company. However, there are potential risk factors involved in the same which includes both predictable and unpredictable risks. Though some risks are uncertain, effective methods can be implemented to mitigate the risks involved.
I’m about to take an example of Ford Motor company which operates on global supply chain. It has acquired wide range of consumer market with a revenue of around ?US$156.776 billion in 2017.The company has developed a new strategy where it manufactures new cars on a smaller number of base vehicles. This updated strategy also requires huge cost as the selling of the new models requires increase in its supply chain by 13% in remote areas. Most of these suppliers are located several miles away from the manufacturing plant. Here’s where I would like to mention the great recession that happened to Ford Motors in 2006 where at some point of time even the privately sourced loans were rejected to Ford Motors questioning its stability. It was a time when it mortgaged the whole company along with its logo (blue oval) for bank loans of more or less $27bn.Global supply chain was one of the factors in putting the company back in the saddle. The company which lost its rating paid the fund back by its potential. It went on cost cutting by selling Aston Martin, Jaguar Land Rover and Volvo Cars divisions and by ceasing the operation of Mercury line. Hence, Ford was capable of reducing its debt by 40% by offering both cash and stock to bond holders. It became second largest seller of automobiles in 2010, transcending Toyota Corp. Ford Motor holds 1,400 Tier 1 suppliers with 4,400 manufacturing sites. Between the automaker and source of inventories there are 10 tiers of suppliers. It has a steadily growing supply line .Ford’s constant management in supply chain was a key factor for its better fortune, said Harley (Supplychainbrain.com, 2012).
The risk management mechanism used by Ford Motor Company has enabled it to surpass many disastrous events without causing much impact on the society. For example, a plant in Thailand was successfully operating in two weeks of a huge flood in Thailand (fall, 2011).It managed to overcome a fire accident that happened with one of the suppliers in Michigan without compromising with the need of the buyer. The company uses a tracking chart to identify risks involved using different colours such as Red, Yellow and Green as status indicators. It also keeps alternative suppliers in case of any obstructions in its original supplier. Proper planning of vulnerabilities is a key to Ford’s supplier management programme. Ford Motor Company experienced with a fire in its supplier site at Germany during 2012 and the cerambycid beetle larva / longhorn beetle larva spoiled many wooden pallets from China. Having a longer supply chain involves managing the cost and time inaccuracies of the supply line. Any damage caused in one of the supplier plants, say a fire accident, results in the time delay of the supply and loss of the manufactured goods which is held with the supplier. This will in turn result in customer dissatisfaction that affects the brand value of the company. Even if it’s a minor fault on the part of the supplier, the consequences has to be faced by the organization as well which is a negative factor involved with the supply chain (Supplychainbrain.com, 2012).
5.3.Underlying drivers of uncertainty in a supply chain
? Within a supply chain, there are Informational risks which involves miscommunication between the supplier and the client, wrong data sharing between the departments of an organization and out-dated databases containing old or erroneous data. For example, Ford Motor Company uses Auto-xchange which provides customer interactive environment allowing the front end and back end to coordinate at a faster pace. This facility enables one to trade their motor vehicles in exchange of a new vehicle with reduced or no cost. It provides the customers whatever they want at the time of their need, at a nominal prize. This is primarily done for an easier coordination between the customers, suppliers and the manufacturer. However, any Informational errors/databases that are not updated will mislead the customers at the front end and lead to inaccuracies.
? Financial risks include the risks involved in money transactions and poor investments. Organizations must also make sure that the investments made are for an asset of current requirement. For example, Ford Motor company invested more on building fuel efficient vehicles which was lagging before at their time of loss which aided in improving their financial condition. Companies have to make proper analysis on their areas of improvement and invest in accord.
? Longer the supply chain, longer is the transportation and the cost involved on the same. Delivery of goods along the supply line may result in loss of goods, damage of goods, shortage of stock, and delay in the delivery of the product. For example, goods transported via ships may be pirated during transit. The Jat violence in Haryana (2016) involved delayed or no delivery of many ordered items in Myntra (online shopping) which was routed via the place.
? Natural risks include uncertain events / disasters such as cyclone, flood, earthquake, storm, drought, fire accidents, riots, etc. Any of the above listed events in a supplier plant will lead to the delay or loss of goods transported. As mentioned above, during the Germany Spring 2012 fire at a resin producer there were damages to the property which Ford Motor Company had to cope up with.
? Organizational risks occur due to human resources in an organization, relationship between the supplier and the customer, clashes between the workers within and across departments. The problems are loss of a client, communication barriers.
? Environmental risks such as oil/chemical spills in the factory, air/water pollutions, weather changes, etc. are the uncertain events applied to a supply chain.
Apart from these, there are numerous types of risks in a supply chain (both internal and external supply chain risks) most of which is very difficult to be predicted even in case of well experienced management (Donald Waters, 2011, 99-103)
5.4.Benefits from gaining visibility into the risk in supply chain
Internal supply chain risks are easier to identify as they are within the control of the organization while external risks are difficult to mitigate as it primarily relies on several factors other than the business such as suppliers, physical factors, demand, environment, government regulations, etc.
– Top ranked companies are characterized by systematic supply chain management approach.
In huge market places, ensuring the availability of alternate suppliers will enable sales of goods without much loss in revenue and dissatisfaction of customers in case of any accidents at the primary supplier site. This will enable a company to overcome environmental risks.
– As Automated software systems are now designed on a global basis for getting the client demand online, improper updating of the web might lead to miscommunication to a wide range of clients. Employing proper resources for updating the systems with recent data leads to better client understanding, failure of which will lead to client misleading (Business.qld.gov.au, 2018).
– Demand risks may occur at any time which is nothing but a misunderstood / inestimable demand from customer side. Apart from the usual procedure used for taking order from the client, a centralized web system for the manufacturer, supplier and client for placing any order, will record the demands made by the client by which these discrepancies can be overcome.
– Inefficient regulatory compliances at a supplier plant or sudden change in governmental laws in a supplier plant might affect the transportation of goods manufactured. Holding variegated suppliers would resolve such unpredictable risks (Business.qld.gov.au, 2018).
– Proper incident response plan allows any educated person at one’s organization to act on revitalizing the supply rather than waiting for the key staff member in case of any hindrances in the supply line. It provides a clear perceivance of the supply chain processes to every member of an organization.
Apart from the above, a company is positively impacted / benefited in the following ways if it has a strong risk identification measures:
– No halt in delivery
– No reduction in sales planned
– Intransigent customer base
– Stock of raw materials and produced goods are preserved
– Waste is eliminated by increasing the Value added operations and reducing the Non-value added operations
– It leads to the cost cutting
– Better relationship with multiple suppliers
– Increased company reliability by the suppliers and customers
– Enhanced employee base/human resources
– Increased brand value
5.5. Difficulties in formulating measures for identifying the uncertainties of a supply chain
? With increasing size of the supply chain, the traceability and visibility of errors is getting reduced and complicated means such as information technology sources have to be used to identify any disruptions or defects (Boyens, 2012).
? Usage of complicated systems for risk identification results in high expenditure of the organization
? Supply line includes a heterogeneous system with different spatial characteristics. Intercommunication across such non-linear subsystems keeps the supply chain in place. Framing risk-mitigation measures for such stochastic system is a great challenge.
? Conventional approaches are ineffective in the new models of supply chain. Need for durable, reliable and adaptive systems is increasing day by day as decision making by a supply chain manager amidst numerous constraints, political regard, diverse stakeholders, changing opinions, stringent deadlines, limited resources, hastily changing conditions is very difficult (Waters,D.,2011)
? In case of precarious events such as labour strike, heavy traffic, attacks by terrorists, etc., (Poirier et al. 2007; Tang, 2006b; Christopher and Lee, 2004) confined optimum strategies to handle one supply chain interference may affect others in the network. Effective mitigation measures have to be formulated keeping these into consideration.
The strategies used by Ford Motor Company for Logistics and Operations management were many. The following gives the comparison of the strategies used with the critical factors involved in the success of supply chain.
TABLE 6: Supply chain-critical success factors
GSC has various underlying risks which hinders the growth of an organisation at various levels as discussed in the paper. However, proper analysis and mitigation strategies can streamline the path for betterment of the organisation’s current stature and improve quality in the areas where it was lagging. Working on innovative strategies and not just on the conventional ones, helps a company to stand out amidst its competitors. Investing on value added operations such as development of newer technologies or applications and concentrating on local economies is a valuable strategy. Focussing not only on the customer market but also on the employee market (improving ergonomics) will increase the organizations’ stand in internal and external boundaries.
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