The Benefits of Global Supply Chains

Business has moved into the global market over the past few decades, claim Taglioni & Winkler (2016). Globalization has led to the emergence of new markets, which has substantially benefited numerous organizations and businesses. According to Short, Toffel, and Hugill (2016), globalization was formerly restricted to the electronics, apparel, and textile industries but has since spread to a number of other industries and has benefited the participating firms by boosting their competitive advantage, particularly through the use of global sourcing. Prior to now, only the lead firms had access to the majority of the technical capabilities needed by most enterprises for assembly and component production. However, there is progress in some areas as companies slice up their production chains through the use of global supply chains.

The Threats Associated With Global Supply Chains

According to Short, Toffel, & Hugill (2016), the global supply chains face a vast number of threats especially due to the global nature of the activities and their impact on the financial performance of the firm. Taglioni & Winkler (2016) state that threats are part of any global supply chain and may arise from legal issues, security problems, supply shortages, environmental compliance, terrorism, regulatory compliance, natural disasters, or safety challenges. Therefore, for any global supply chain, there exists some element of threat. Companies operating through global supply chains face threats through disruptions in their supply due to global customs, port congestion, or foreign regulations. There are economic and political instability threats in the source country and threats caused by changes in economics such as exchange rates.

Short, Toffel, & Hugill (2016) write that the companies operate in a highly volatile environment that is mainly characterized by frequent threats to assets, personnel, and passengers such as piracy, terrorism, asset and cargo theft, hazardous goods transport, and storage, or vehicle crashes. There exist geopolitical dynamics, digital failure, and cyber-attack threats to the business integrity especially due to the increased interconnectedness of the global supply chains. According to Basu & Wright (2017), there are massive amounts of data exchanged between the different parts of the manufacturing, distribution, and logistics processes that make the global supply chain vulnerable to security and privacy breaches. There also exist day-to-day threats such as a change in customer demand, unexpected transit delays, production problems, and a shortage of warehouses.

How These Threats Impact Companies and Their Customers

Basu & Wright (2017) state that the threats have a significant impact on the global supply companies and their companies as these threats lead to a decline in operating income, higher share price volatility, lower shareholder returns, and a decrease in sales. In addition, there is a loss of suppliers that impact both the company and their customers. In the case of a perceived threat suppliers cannot continue to supply and therefore there is no delivery of the goods and services to the customers within a reasonable time frame. The threats have an impact on the customers’ shipments through threats such as production and warehouse malfunctions, theft, problems with the suppliers, change in the orders of the customers, or unexpected delays (Taglioni & Winkler, 2016). The company’s facilities are also impacted by threats such as theft and natural disasters especially those operating in disaster prone areas. The quality of services and goods delivered are also affected as these threats tend to make the supply line long through prolonged handling in the supply chain. Finally, Basu & Wright (2017) add that the terrorist threats result in the addition of unforeseen costs to the supply chain that is transferred to the customers.

How Companies Can Mitigate the Risks Associated With Their Global Supply Chains

There is a need for global supply chain businesses to ensure they operate through appropriate preventive measures, procedures, and policies as this helps the company prevent some of the threats and risks it encounters in its global operations. Short, Toffel, & Hugill (2016) write that these measures are important as they help mitigate possible negative consequences and their adverse effects. Short, Toffel, & Hugill (2016) add that companies need to be well informed of all potential risks and threats that are present in the global supply line to ensure they are well prepared with a risk management process to minimize and mitigate the impact of such events.

According to Taglioni & Winkler (2016), supply companies can also mitigate the threats in the global chain of supply by working with insurance companies and brokers. Through these partnerships, the companies get to share the best practices that are significant in mitigating the threats especially in minimizing financial impacts of the day-to-day threats in the supply chain. In addition, companies can find solutions to prevent these daily problems that may result in losses for both the company and its customers. As an integral element in the company’s risks and threats mitigation, the company should consider quantifying the threats they face and then seek specialized insurance services.

Another important threat mitigation procedure is choosing financially strong and competent suppliers to work in the company’s supply chain. The companies need to focus on compressing the global shipping time to mitigate supply chain threats, and according to Basu & Wright (2017), the companies can achieve this through the application of lean principles and six-sigma techniques. The companies should look for ways that help mitigate or reduce waste and delays at every step in their global shipping process.







References

Taglioni, D., & Winkler, D. (2016). Making global value chains work for development. Washington (D.C.: World Bank.

Short, J. L., Toffel, M. W., & Hugill, A. R. (September 01, 2016). Monitoring global supply chains. Strategic Management Journal, 37, 9, 1878-1897.

Basu, R., & Wright, J. N. (2017). Managing global supply chains. Abingdon, Oxon; New York, NY: Routledge.