Sunday, February 3, 2013

Supply Chain Management under Globalization

In today’s environment, as the world gets flatter, supply chain management requires more strategic thinking and decision with considering trade-offs among a lot factors.

Although one of the primary driven incentives of supply chain management is to reduce operational cost which may include labor cost, procurement cost and inventory cost, there is more complicated issue behind the scene. For example, transaction cost is imposed on the procurement cost.[1] In the case of lowering labor cost, Toyota decided to shut down its California plant, while a lot other firms do so by outsourcing such as Cisco.

In order to reduce the cost of procurement, the management board need to consider more than just objective factors such as direct costs of acquisition, transport costs, and training costs, they need to take subjective factors into consideration as well. The brand value of the firm, corporate culture or political concerns are also core issues which need to be considered when making decisions for supply chain operation. As the world is becoming flatter, a disaster happened in Japan will affect the whole world.[2] This is especially true for outsourcing operations. Due to cultural, legal and social differences, cooperate normally need to work harder to make the right choice of the companies’ strategic position.

The ultimate objective of a company is to make money continuously. Thus, the trade-off between long-term and short-term outcome is also crucial. Take Walmart as an example, instead of continuously spend on operation costs, it takes its own initiative to innovate the way of supply chain management they want and invest in it for the long run.

Moreover, the trend of globalization also makes the demand forecasting more difficult. For example, the 21st century dot-com bubble trapped a lot of telecom companies. A lot of telecom companies lay down too much optical fiber under the sea due to false forecasting.
Outsourcing makes the decision even more complicated because of bullwhip effect[3], since the firm had to works with vendors overseas more closely to adjust the demand and supply. Cooperation between different firms will need contact, control and compliance.[1] It is really troublesome when dealing with people.

In the book, “The World is flat: A Brief History of the Twenty-First Century”, Thomas Friedman analyzed globalization in many aspects. It also points out the supply chain Wal-mart used as the best example of using technology to streamline item sales, distribution, and shipping.[4] Reading this book will also give us a clearer view about how technology (such as workflow software) shape the new world. This book also stresses the issue of innovation. In the super dynamic environment, we need to keep ourselves up to date and innovate to develop. The book mentions ten “flattener” includes a lot of techniques. But when speaking of innovation, it is not just about patterns or new techniques such as cloud computing, it also involves how to make work more efficiently such as the Tata’s case.

Nevertheless, as the world is flat, everyone has our own responsibility for the world’s health. More and more attention has been placed on the environment issue all over the world. As such, companies become more aware of the green supply chain to adept to climate change. There is a case, “Climate change risks and supply chainresponsibility”, studying what climate change means to three companies: Starbucks, Marks & Spencer, and the Body Shop. Results show that how climate changes affect producers: increasing their costs; threatening the quantity and quality of production; and making decisions about planting and harvesting increasingly difficult.

Here, I want to stress the action taken by the Body shop about how they achieve the goal of green supply chain.[5] They take action on their partnership strategy, IT strategy, waste minimize strategy, and transportation strategy. For partnership strategy, they prefer suppliers who are environmental friendly and cooperate with them to improve their environmental management and performance. As a result, it yields a competitive strategic position with healthy partnerships. For the IT technology, using E-commerce would largely reduce the material waste while enhancing communication and information sharing which in turn increase the profit. In addition, the Body Shop do hold an ethic value about contributing to the world’s wellbeing by protect the planet and defend human rights.

With all the understanding of globalization, the questions remains that how you collect relevant information and apply those in demand forecasting or other operation decisions.

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