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Globalization Effect on Supply Chain Management

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Globalization Effect on Supply Chain Management

This is the second post in a series of “Supply Chain Basics Training to Your Employees – Is it Necessary?”. In case you missed the previous post, here it is “Importance of Supply Chain Management“.

In my last post I discussed the importance of supply chain management. Here let us discuss the impact of globalization on supply chain.

With the advent of globalization, managing supply chain activities has become more complex. Today a company operating in the United States may have its manufacturing facilities in China, Mexico or Taiwan and its customers throughout the world. Many companies in order to manage its global operations may outsource their supply chain activities to third-party organizations around the globe. Outsourcing reduces the supply chain operating cost but when not managed effectively proves otherwise.

Consider the case of Star Bucks.

When Starbucks, an American global coffee bean company, was opening its stores around the world, it outsourced many of its supply chain activities. But it did not focus on managing the supply chain in the right manner. As a result, the operating expenses and the cost of running the supply chain rose steeply.

In 2008, CEO of Star Bucks, Howard Schultz appointed Gibbons to run the company’s supply chain. Gibbons analyzing the company’s supply chain found that about 60 to 70% of operating expenses were due to the outsourcing agreements. He observed that outsourcing allowed the company to spread globally but the cost associated with it escalated. Hence, he decided to reorganize the supply chain. He devised a 4-step approach, which played a key role in the company’s success. Now the company is operating successfully in more than 50 countries with 16,000 stores. [Source: supplychainquarterly.com, From bean to cup: How Starbucks transformed its supply chain]

From the above case we can say that complexity involved in managing the supply chain increases when the companies move globally. Accordingly devising the strategies to mitigate the risk plays a vital role. Information technology plays an important role in minimizing such risks and managing the supply chain globally.

In my next blog let us deal with the role information technology plays in managing the global supply chain.

Register for the Webinar on Supply Chain Basics Training to Your Employees, is it Necessary?

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