Module: Operations & Supply Chain Management

Lesson: Global supply chain networks

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Global supply chain networks

Introduction

By the end of this lesson, you will have a deeper understanding of some of the key features to
consider in global supply chain management. Naturally, we live in a global environment, and
failure to consider this aspect of operations and supply chain management will only result in
failure. Therefore, to assist in developing your knowledge, we have considered a number of
important areas to view. For your core reading for this lesson, please read chapter 6 of Chopra
(2015)

Lesson Objectives

9.1 Evaluate the cost factors of a global supply chain

9.2 Assess the potential disruptions to a global supply chain

9.3 Discuss risk management in global supply chains.

As a result of these objectives, after completing the lesson you will have a much better
understanding of how to evaluate the global supply chain and how to overcome some of the
common issues and problems that you may face. We hope that you enjoy your lesson and if
you have any problems, please contact your tutor at any time.

Reflections, REMINDER!

Before we progress, a quick reminder from us to ensure that you add your reflections to date
on the MyLearningSpace Blog. This will keep your thoughts up to date and help you track your
development from the previous lessons.

Narrated Presentation

Please now view the narrated presentation which will give you an overview of what is included
in this lesson, as well as an overview of the content, theories and activities.

https://vimeo.com/229833166/66ffae7000

Transcript

Word cloud

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 Figure 9.01 - Word cloud

Walmart and the Global Supply Chain Network

Watch this short video about Walmart and how it operates a global supply chain yet still
manages to keep prices down. Write down five things that make a global supply chain work
effectively and whether these could be replicated in a business that you are aware of. Share
your thoughts with your tutor.

Think global, act local

think global, act local.

Read the famous article attached about McDonald’s and how it has expanded operations
despite difficulties in the standardisation of its products and services. What has the business
done to adapt its ways of operating to make it efficient and effective at what it does? Share
your answers with your tutor.

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Introduction, Global Supply Chain Network

The global supply chain network, as you can probably imagine, is a worldwide operation and
there are a number of key attributes that need to exist in order to make the operation a)
possible, and b) effective. Factors such as globalisation play a crucial role in global supply
chain networks. As you will no doubt read in Chopra (2015), organisations such as clothing
brand Zara and Samsung mobile phones are now global brands (to name a few) and, of
course, getting their products across the world involves a serious amount of logistics. Another
interesting fact from the Chopra text comes from P&G, which states that around 1/3 of its
sales come from developing markets, while 86% of Samsung’s sales come from abroad.
These facts go to show the magnitude of globalisation and the impact it is having and will
continue to have in the years to come.

Interestingly, though, a recent survey by Accenture suggested that senior managers and
operations managers typically agree that if you are running a supply chain as part of a global
network, there are far more risks. One example is hurricane damage to banana growers who
ship their products to many countries around the world. Within this lesson, we will begin to
cover some of the costs associated with global supply chain networks and, of course, some
risk management methods as well.

What is a Global Supply Chain Network?

‘A global supply chain refers to the network created among different worldwide companies
producing, handling and distributing specific goods and/or products.’

Global Supply Chain Costs

One of the biggest issues facing a multinational company when they operate on a global scale
is that of costs. If a business can reduce its costs in some way, there would be many that
would up take this opportunity, if they hadn’t done so already. However, because there is less
control available in a host country vs a home country, there have been recent cases whereby
some companies have started bringing their services back to the UK, with call centres being
one good example. However, to be more precise, here are a number of costs which are
typically associated with operating a global supply chain network, all of which should be
evaluated:

Supplier price - the costs of supplying the goods and services in a host country if the
supply chain is moved offshore

Raw material costs

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 Unit costs

Tariffs and trade barriers

Hidden costs

Capital.

There have been many examples of businesses purposely relocating to other countries
because of cost and having their supply chain, or part of it, in a different location. One of the
best UK examples was when Sunderland attracted Nissan to the area because of the
reduction in tariffs and trade barriers that were essentially cancelled to attract them to the
area.

http://news.bbc.co.uk/1/hi/business/1136312.stm

Read the article above, then, through your own research, establish if a similar offer was made
to Toyota in Derby. Report back to your tutor.

Potential Disruptions

As we have been discussing up to this point, there are a number of risks that can affect the
global supply chain network: natural disasters, the weather, industrial action, political
situations, political unrest, even warfare. These are all examples of situations that can affect
the flow of operations. Naturally, operations managers will wish to undertake as much risk
management and network protection as possible. This section will therefore identify some of
these. Chopra (2015) chapter 6 is a good place to read about some of the real-life examples
that have taken place. Having these examples at your disposal will give you great coverage
for later, so please ensure you read chapter 6 of the book as it is an excellent source of
information.

When reading your textbooks and other material, you may come across the term ‘mitigation of
risk’. This essentially means that the operations manager is trying to reduce the amount of
risk that they are exposed to should any issues occur. Before we begin to look at some of the
risk management strategies, we thought it would be a good idea to cover some of the risks
that may occur in the first place, just to give you an idea of what they often are:

The above table was sourced and adapted from the Chopra (2015) core text, so for more
information and the complete table, please visit the book. As you can imagine, in some
instances, perhaps in relation to natural disasters, there is very little - indeed, maybe nothing -
that the business can do to prevent the situation. In these cases, having a backup plan or
alternative routing for the network is always advisable. One example was the failure to predict
the volcanic ash cloud of 2010 and the chaos that descended on airlines afterwards. However,
there are several risk management strategies which can be undertaken.

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Category of Risk Driven by
Disruptions Natural disasters, labour disruptions, industrial
action
Delays Weather, sorting at destination
Long-term forecasts Poor levels of forecasting, bad interpretation of
data, failure to conduct environmental
scanning
Procurement Exchange rate, price of units

2010 Ash Cloud Disruption

http://www.telegraph.co.uk/finance/newsbysector/transport/8531152/How-the-2010-ash-c...

Read this 2011 news article from the Telegraph, and before you start to look at the methods of
risk management in more detail, on a preliminary basis, write down some of the points that
you would have undertaken to mitigate risk in that situation. Note down some ideas and share
them with your tutor.

Risk Management Strategies

Due to its global nature and systemic impact on the firm’s financial performance, the supply
chain arguably faces more risk than other areas of the company. Risk is a fact of life for any
supply chain, whether it’s dealing with quality and safety challenges, supply shortages, legal
issues, security problems, regulatory and environmental compliance, weather and natural
disasters, or terrorism - there is always some element of risk.

Companies with global supply chains face additional risks that include, but are not limited to,
longer lead times, supply disruptions caused by global customs, foreign regulations and port
congestion, political and/or economic instability in a source country, and changing economic
factors such as exchange rate fluctuations.

The scope and reach of the supply chain cries out for a formal, documented process to
manage risk. But without a crisis to motivate action, risk planning often falls to the bottom of
the priority list. The low priority for managing risk in companies is puzzling. After all, supply
chain risk management is a very popular topic at conferences and is written about extensively
in books and articles. In spite of all the discussion, however, we still see the vast majority of
companies giving this topic much less attention than it deserves. In any case, here are some of
the most common risk management strategies that are often used:

1. Risk identification

2. Risk assessment & risk management

3. Prioritise risks

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4. Increase flexibility and responsiveness

5. Increase inventory & backup supply

6. Increase capability.

This risk apathy is driven by supply chain executives, who often find themselves at the centre
of a daily storm, striving to balance very demanding operational objectives while satisfying
customers, cutting costs and helping to grow revenue. They must deliver results today while
working on capabilities that will make their companies competitive in the future.

As Chopra (2015) comments, one of the greatest defences against problems in the supply
chain is increased flexibility. Chopra (2015) comments that a firm can achieve this in two ways:
increasing the firm’s product mix (offering a wider variety and/or range of products), and
through volume flexibility (where a firm can remain profitable at different scales of business).

Peck et al. (2003)

risk management strategies.

Read the article by Peck et al. (2003) included here and write down any additional risk
management strategies that you think are appropriate, in addition to those that we have
already mentioned.

References and journal articles

Essential reading

Slack, N., Brandon-Jones, A. and Johnston, R., 2013. Operations management. 7th edition.
Harlow: Pearson.

Journal articles

Krajewski, Lee J., Ritzman, Larry P. and Malhotra, Manoj K., 2013. Operations
Management: Processes and Supply Chains: Global Edition. [online]. Pearson Education.
Available from:< > 25 July 2017

Milner, C., 2016. Operations management: The interesting option, or ‘the pizza puzzle’.
Operations management, 42 (2), pp. 8-9. [Available from: Business Source Complete].

Piercy, N., 2012. Business history and operations management. Business History, 54 (2), pp.
154-178. DOI: 10.1080/00076791.2011.631121. [Available from: Business Source Complete].

UNIglobalunion, 2013. Walmart Supply Chain [video, online]. YouTube. Available from:

https://www.youtube.com/watch?v=yZC4neLax5o [Accessed 06 August 2017].

Further reading

Achrol, R.S., Reve, T. and Stern, L.W. (1983), “The environment of marketing channel dyads:
a framework for comparative analysis”, Journal of Marketing, Vol. 47 No. 4, pp. 55-67.

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Appelqvist, P. and Gubi, E. (2005), “Postponed variety creation: case study in consumer
electronics retail”, International Journal of Retail & Distribution Management, Vol. 33 No. 10,
pp. 734-48.

Ellram, L.M. and Siferd, S.P. (1998), “Total cost of ownership: a key concept in strategic cost
management decisions”, Journal of Business Logistics, Vol. 19 No. 1, pp. 55-84.

Hult, G.T.M., Ketchen, D.J. Jr and Nichols, E.L. Jr (2003), “Organizational learning as a
strategic resource in supply management”, Journal of Operations Management, Vol. 21 No. 5,
pp. 541-56.

© 2017 Arden University Ltd. ALl rights reserved

© 2017 Arden University Ltd. ALl rights reserved
 © 2017 Arden University Ltd. ALl rights reserved

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