Global Supply Chain Management in a Post-Pandemic World

The risks and benefits of a global supply chain

Published: Thursday, March 24, 2022 - 12:02

The sheer scope of public-sector organizations’ requirements means many rely on the global supply chain. This involves buyers across the world procuring both goods and services from suppliers in destinations throughout the world. A global supply chain has benefits, many associated with price, but there are also fairly obvious associated risks.

In this article, we delve into some of the different facets of global supply chain management.

What is a global supply chain?

Thanks to globalization, it should come as no surprise that supply chain management has undergone many changes in recent years. Global supply chains not only span countries but also continents, and exist to source goods and services to supply the home country. Global supply chains also involve the spread of materials and other resources, together with processes, information, and skills, throughout the world. Usually, the supply chain involves production in a country where costs are lower for a buyer in a wealthier country.

Managing an individual supply chain involves almost every business activity, including but not limited to marketing, manufacturing, purchasing, logistics, finance, and personnel.

CIPS (the Chartered Institute of Procurement and Supply) details the difference between global and local supply chains: “A global supply chain utilizes low-cost country sourcing, is linked to global supply chains, and refers to the procurement of products and services from countries with lower labor rates and reduced production costs than that of the home country....

“A local supply chain will look to optimize suppliers who are regional to your own organization. In some instances, organizations will look to leverage ‘homegrown’ supply routes, so all suppliers feeding into your supply chain will be located within the country in which your organization is based. Or the supply chain can be even closer to your organization, sometimes within the same city or district, which often gives clearer visibility of the whole supply chain, from raw material through to consumer.”

Benefits of global sourcing

Now that we’ve defined what a global supply chain is, let’s take a look at the benefits, which are many.

Cut costs

It's no surprise that many procurement decisions are, to a greater or lesser extent, driven by cost. A host of organizations choose to source globally, thanks to lower labor costs, particularly those associated with manufacturing products but also with providing services. The relative value of currencies means that there are many countries around the world where a salary equivalent to a few dollars or pounds sterling a day is enough to provide a tolerable standard of living.

While there might be negative connotations associated with sourcing lower-cost labor, supporting a low-cost country with work positively contributes to its economy and supports the creation of new jobs and opportunities.

Improve expertise

By working with a global supply chain, organizations have the opportunity to call upon improved expertise, which enhances innovation and gives new and improved skills to an additional market. The MOD is well known for supporting global innovation, working alongside allies in Europe to better equip domestic and foreign offering.

Increase competition

Thanks to the powers of digital technologies, sourcing has never been easier. So, it would be foolish of buyers not to check out what’s on offer and take advantage of the competitive nature of other countries’ supply chains.

Assists in the growth of developing countries

Mentioned above, one of the undeniable benefits of global sourcing is the growth of the economy in developing countries, which fuels education, reduces poverty, and establishes better living conditions.

Drawbacks of global sourcing

Although we recognize that there are a number of benefits to global sourcing, we’re not blind to the associated drawbacks. What many might fail to consider is that engaging in global supply chains involves working with different cultures, currencies, and time zones. This can lead to unanticipated disruption through political strikes and disturbances, or even natural disasters.

Time to use

Despite the fact that overseas production might be quicker, the lead time can often be much longer because the goods will require shipping, which of course adds time to the procurement process. Take, for example, the blockage of the Suez Canal between March 23 and March 29, 2021. Because approximately 12 percent of global trade, which equates to about one million barrels of oil and 8 percent of liquid natural gas, passes through the canal every day, the effects of such a blockage are stark. Data from Lloyd’s List estimated that the holdup cost trade about $6.7 million per minute, or $9.6 billion a day.

The impacts associated with lead times became a major concern for supply chains during the coronavirus pandemic, when the sudden global surge in demand for personal protective equipment (PPE) brought the supply chain to the point of collapse, forcing governments to take emergency action to ensure supply. Interestingly, this often involved “onshoring” production; now, more than 80 percent of UK PPE is produced on home soil.

Reputational risks of global sourcing

Perhaps one of the biggest concerns of global sourcing is that it can increase reputational risks for your business and could expose your organization to modern slavery.

There are fundamentals that public-sector purchasing professionals should look out for in terms of signs of unacceptable practices in the supply chain, such as fraud, corruption, modern-day slavery, human trafficking, as well as wider issues such as child labor.

Regarding this, the Ethical Trade Initiative advises: “Governments should use their very significant purchasing power: They have considerable influence over their suppliers and can use this leverage to drive change in the private sector. Governments should hold themselves to the same standards as they expect of the private sector—to manage, mitigate, and prevent the risks of modern slavery, forced labor, and human trafficking in their operations and supply chains.”

These issues are hard to spot even in the UK; overseas they can be a greater problem, both in terms of frequency and difficulty of detection at a distance.

Distance and loss of control

Of course, one of the overarching issues associated with global sourcing is the development of a long-distance relationship, limiting potential contact and control.

The aforementioned time zone differences and language barriers can cause communication challenges; the buyer may not be able to oversee the production process face-to-face because regular site visits may not be possible. This can lead to situations where, for instance, the buyer is unaware of unacceptable working practices in the production process. This occurred during the pandemic when the UK’s National Health Service sourced PPE from Malaysia’s Supermax, which had won a £316 million (about $417 million) contract with the health service, but later discovered that the United States “forbade the company from selling its products after an inquiry found ample evidence that it had used forced labor in the manufacture of its rubber gloves.” The UK government has now launched its own inquiry to ensure that products made using modern slavery are not used in Britain.

Distance does not exempt a buyer from responsibility. In many cases, buyers do not purchase directly from these overseas producers. Rather, they are part of a company’s supply chain, and responsibility sits ultimately with the supplier to ensure its supply chain is “clean”—but it is up to the buyer to verify that all appropriate checks have been made.

Operating a frictionless supply chain

That said, just because you’re working with a global supply chain doesn’t mean you have to fall foul of all the previously mentioned issues. Rather, there are steps you can take to ensure your supply chain, global or local, continues to run smoothly.

Implement supplier management software

There’s some onus on you here. If you want to guarantee that you’re operating with efficiency, then you need to make sure you’re using up-to-date technology and software that help you deliver in-depth evaluation of strategic supplier performance. To improve the efficiency of your organization’s supplier management, make sure that you are using the latest technology that will deliver in-depth evaluation of strategic supplier performance.

Call on comparison data

Undoubtedly one of the most effective tools in your armory, comparison data allow for the analysis and tracking of information throughout the supplier management process. Similarly, the data assist with identifying supplier risk and areas for improvement. Your organization can use this information when it comes to deciding on future tenders.

Record supplier performance

Do you want to know the right people to work with? Well, you need to report on previous results. Did a supplier stand out in a particular area? If so, record it and choose them the next time. What can you do with supplier performance? Collating the different types of data means your organization can achieve a deeper understanding of the suppliers it should be working with.

These are the basics of global supply chain management and what it could mean for your organization.

About The Author

Jonathan Gilpin

Jonathan Gilpin is a content executive for BiP Solutions. Having worked for six years in journalism and marketing, he currently specializes in procurement and employment.