For entrepreneurs, importers and exporters who wish to sell at a global scale, you will need to manage a global supply chain. The challenges that you face with a global supply chain will be complicated, be it cash flow, policy changes, language barriers etc.
So, how do we handle these challenges properly and make use of the advantages of using global supply chains? The key is to know what kind of issues you will come across and how to mitigate them effectively.
This article at a glance:
1. What is a global supply chain?
Global supply chains are global networks that span across multiple countries for the main aim of sourcing materials and supplying end goods and services.
2. How is a global supply chain different from a local supply chain?
In a global supply chain, business owners and importers look for cost-effective alternatives when buying raw materials and engaging services from countries with lower labor rates than their domestic country. In a local supply chain, business owners look for suppliers in their home country, without the involvement of any overseas partners.
3. Who primarily makes up the supply chain?
Your supply chain can be made up of suppliers, vendors, manufacturers, warehouses, transportation companies, freight forwarders, distributors and retailers.
Before we go into the depth of 10 challenges you may face in global supply chain management, we will bring you through the advantages of using a global supply chain and why you should consider it for your business expansion.
When you want to run your business overseas and work with international suppliers or customers, you will need to utilize an international system to produce and distribute your goods and services. This international system is called the global supply chain. Companies generally develop supply chains to enable them to reduce their costs of producing the product in order to sell them at a lower cost point to their customers.
The global supply chain is made up of many parties — suppliers, vendors, manufacturers, warehouses, transportation companies, freight forwarders, distributors and finally, retailers. The reason why the global supply chain is referred to as ‘global' is that there can be many different countries involved in the production and distribution of a single product. For example, you could get your raw materials from India, engage labor from Vietnam and hire manufacturers from China.
On the other hand, if you only engage help from parties that are situated in one country, it is called using a local supply chain.
People often confuse supply chain management and logistics management. Keep in mind that although these two terms are sometimes used interchangeably, they are not the same. Logistics is in fact, a part of the huge supply chain process which transports and stores the goods from point A to point B.
Nevertheless, good logistics management is crucial in a successful supply chain movement.
While it may seem easy on paper, there are actually many steps to ensure that your supply chain runs smoothly, especially during the period when everyone is dealing with a pandemic. Firstly, national borders are constantly changing their restrictions to keep up with the most recent government laws. Secondly, most companies are moving towards digitalization in their workflow. Lastly, there is an increase of communication breakdowns that is undesirable for a supply chain.
If your company produces mainly the same kind of products that do not change constantly, this is the model you should use. The raw materials used should be replenished nonstop and production times should be cut down to the shortest. You are able to do this because the materials and processes you use remain the same; there is no variation to the end product.
This model works best for companies that sell seasonal products such as Christmas decorations or Halloween costumes. These products surge in demand during the months of December and October but drop in demand during other months. With the flexible model, you can shut down once you see a drop in sales and start up again once there is a need.
One industry that demonstrates the use of the fast chain model is fashion. Fashion trends are ever-changing. Trend A could be booming in popularity in January and go out of trend in February; this is common in fast fashion. Therefore, using the fast chain model allows you to get your end product fast to ride on the ongoing trend before it dies down.
Global supply chains have always been competing against one another, just like how competitor companies do. The race to produce and sell the end product to the consumer is vital when there are so many platforms selling the same product. Customers and businesses now want their products shipped out and delivered to their doorsteps ‘fast and furious', paired with top-notch customer service and aftersales.
Well, it is a difficult but necessary task. Without a proper supply chain, your business will not be able to operate at all.
In order to keep your product costs low and still earn enough profit margin from the sale, you need to ensure that your costs are kept as low as possible throughout the supply chain. This is a challenge, however, when costs are increasing everywhere. Fuel, raw materials, labor, storage, transfer and inventory costs — these are all rising due to a larger demand.
If you were previously working well with a certain company, the best idea would be to stick to them. Like people say — if it ain’t broke, don’t fix it. Switching up a section of the supply chain will have repercussions on other sections of the chain as well.
With the prevalence of e-commerce websites such as Amazon, Lazada and Shopify, customers are the king. If your customers are unhappy with the service they’re getting on one platform, they simply hop onto another. Customers have the choice of multiple platforms to get what they want, be it e-commerce, traditional marketplaces, third-party marketplaces and even drop-shipping websites.
A lead time of a week is no longer that acceptable, if you’re looking at local deliveries. Buyers now are requesting next-day deliveries (which many companies are offering at an extra charge) and packages to reach them within a day or two. If your company cannot cater to these expected delivery speeds, the consumer simply moves on to the next platform. It may not cost a lot to the customer, but expect your sales to deteriorate.
One way to mitigate this is to offer different shipping types to your customer, like what many marketplaces are doing. For instance, if the buyer wants a cheaper shipping rate then they can opt for sea shipping which takes a longer time. If they want their goods by the next day, opt for the more expensive next-day delivery option.
Alternatively, you could store your products in different warehouses located in different parts of the country. This way, you could ship from whichever warehouse is nearer the location of the customer for a faster delivery time.
Especially in today’s time and age, markets are fast-changing. Policies are too. One example is the most recent trade war between the US and China, not forgetting Brexit. If you had ongoing relations with China or the US at a point in your supply chain, it could mean huge adjustments for you. With the new and increasing tariff rates, you might need to search for an alternative when importing to and from the US as well.
Of course, every business owner wants to lower their costs of production in order to earn a higher profit margin. However, this often comes at a price. Inexpensive labor may be a result of modern slavery, unfair compensation, child labor, or run-down working conditions — all of which you might not even be aware of.
Always check a company’s reputation before entering working relations with them, to avoid brand reputation damage or legal actions against your company. Performing your due diligence through KYC practices could also help raise any red flags against a company.
Language barriers can be a hindrance to daily communication. It is unavoidable though, you cannot expect farmers in say, Ghana, to be able to read Spanish or understand Mandarin.
Therefore, it is advisable to hire professional staff who are able to speak two or more languages and preferably with some industry knowledge.
If you’re using a global supply chain, you’ll most probably be working very closely with many different countries with varying time zones. For example, the time difference between the UK and Singapore is eight hours, and the difference between the US and India is ten hours. You could have raw materials in India moving through the supply chain but no one at work at the US transportation office. This makes it a challenge when trying to reach your US counterparts if a problem arises with the raw materials.
You could have a standard operating procedure (SOP) for all parts of your supply chain. For example, if there is a problem with the quality of the raw materials in India, what should the US transportation office do? There should be a protocol that can be followed to minimize delays.
Defect products are generally not accepted in most countries, where customers are fastidious about the product they are receiving. If there are defects in your goods, they are more likely to be rejected and refunded, causing you to lose the sale of that particular product.
Quality checks must always be maintained throughout every point of your supply chain. In other words, there should be personnel assigned to check every batch that comes in and goes out at every process. You could also draw up agreements with your suppliers, manufacturers, distributors to state that all products must maintain a certain level of quality, and the consequences should there be a mishap.
If you were previously using a continuous flow model for your supply chain but find that there is a huge demand for a seasonal product. Let’s say you were producing ordinary, black hair bands before in bulk with no variation to the designs of the bands. However, you find that there is an ongoing trend for “Squid Game” bands and want to get on that trend.
You will have to decide if it is worth the trouble changing up your supply chain in order to cater to the trend. In order to fashion different designs on the previously black bands, you will require more raw materials sourced from different areas, and pack them in a different way. This could lead to delays in your supply chain that could cost you in the long run.
We’re talking about huge amounts of money when operating and managing a global supply chain. Thus, even a very small change in foreign exchange (forex) rates can make or break your total earnings. Imagine buying a batch of raw materials for RM5000, which is € 1054 with today’s rate. The next day, the forex rate could rise or drop and the price of each batch of materials will fluctuate.
A way to combat this is to make a huge bulk purchase when your local currency is strong, and avoid the cost of bank charges when transferring money internationally.
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