Managing Interconnected Supply Chains
- A well-managed supply chain improves efficiency, reduces costs, and enhances customer satisfaction.
- However, businesses must weigh the trade-offs between local and global supply chains, considering factors such as cost, reliability, risk, and ethics.
Definition
Supply chain management
Supply chain management involves coordinating all activities required to produce and deliver a product, from raw materials to the final customer.
A bakery sourcing flour from a nearby mill can receive deliveries within hours, ensuring freshness and reducing inventory needs.
Challenges of Local Supply Chains
- Higher Costs: Local suppliers may charge more than international competitors.
- Limited Options: Businesses may have fewer choices for specialized materials or components.
- Capacity Constraints: Local suppliers might struggle to meet large-scale or fluctuating demand.
Consider the trade-offs between cost and speed when evaluating local suppliers. Sometimes, paying a bit more for reliability can save money in the long run.
Global Supply Chains: Cost Efficiency and Scale
Global supply chains involve sourcing, manufacturing, and distributing products across international borders.
Advantages of Global Supply Chains
- Cost Savings: Lower labor and production costs in certain countries can reduce overall expenses.
- Access to Specialized Resources: Global suppliers may offer unique materials or advanced technologies.
- Scalability: International networks can handle large volumes and expand quickly to meet growing demand.
A smartphone manufacturer might source microchips from Taiwan, screens from South Korea, and assemble the final product in China to leverage cost efficiencies.
Challenges of Global Supply Chains
- Longer Lead Times: Shipping across borders takes time, increasing the risk of delays.
- Geopolitical Risks: Tariffs, trade wars, or political instability can disrupt operations.
- Complexity: Managing multiple suppliers across different countries requires sophisticated coordination and technology.
- Ethical Concerns: Businesses must ensure that global partners adhere to ethical and environmental standards.
1. Horsemeat Scandal (UK, 2013)
- Some meat labeled as beef burgers in UK supermarkets was found to be horsemeat, misleading consumers.
- The pressure to cut costs led to unethical supplier practices.
2. Child Labor Allegations in Fashion (2018)
- Investigations revealed that brands like ASOS and Marks & Spencer had suppliers using child labor in Syria, violating the Modern Slavery Act.
- The backlash damaged brand reputation and led to stricter supplier audits.
3. Tesla’s Raw Material Sourcing Issues
- Tesla faced criticism for sourcing cobalt from mines in the Democratic Republic of Congo, where reports of child labor emerged.
- The company had to increase transparency and partner with ethical suppliers.
- Don't assume that global supply chains are always cheaper.
- Hidden costs, such as tariffs or quality issues, can erode savings.
Balancing Local and Global Supply Chains
Many businesses adopt a hybrid approach, combining local and global elements to maximize benefits and minimize risks.
