Impact of Globalization on Logistics and Supply Chain Management

Globalization: The process by which businesses or other organizations develop international influence or start operating on an international scale. It’s the free movement of goods, services and people across the world.

Supply chain management: In commerce, supply chain management, the management of the flow of goods and services, involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption. It’s the broad range of activities required to plan, control and execute a product’s flow, from acquiring raw materials and production through distribution to the final customer, in the most streamlined and cost-effective way possible.

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.

The Four Driving Forces of the Globalization Process:

a) Global Market Forces

b) Technological Forces

c) Global Cost Forces

d) Political and Macroeconomic Forces

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.

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.

With the onset of globalization, managing supply chains has become more complex and business critical than ever before. The disasters in Japan and Thailand have highlghted the need for effective risk management along the supply chain for manufacturers to minimize disruptions and resume normal business conditions quickly in the event of an outage.

When a company’s operations are under its own control, there are fewer moving parts. As a result, the company has greater access to information. In this type of scenario, it is much easier to identify, quantify, prioritize and mitigate risk for better decision making. In an environment that has become increasingly global in nature, there are more parties involved and less information available at any point in the production process. This makes it much harder to identify, quantify, prioritize and mitigate risk for better decision making.

There are three major factors that impact supply chain risk: Increasing supply chain complexity, decreasing access to information and greater need for higher quality faster, all for a lower cost. The ability to anticipate and address risk effectively has been severely handicapped by complexity. Now that manufacturers are outsourcing more work to suppliers across the globe and are managing second and third tier suppliers, it has become difficult to track, trace and monitor production.