Here, we take a look at Global Supply Chain Management in 2022.
The sheer scope of public sector organisations’ requirements means many rely on what is known as a global supply chain – this involves buyers across the world procuring both goods and services from suppliers in destinations throughout the world, whether directly or as part of the wider supply chain of a UK-based supplier.
A global supply chain has benefits, many associated with price, but there are also fairly obvious associated risks.
In this blog, we delve into some of the different facets of global supply chain management.
What is a Global Supply Chain?
Thanks to globalisation, it should come as no surprise that supply chain management has undergone extensive changes in recent years. Global supply chains not only span countries but 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.
The management of 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 utilises low-cost country sourcing, is linked to global supply chains and refers to the procurement of products and services from countries with lower labour rates and reduced production costs than that of the home country…
A local supply chain will look to optimise suppliers who are regional to your own organisation, in some instances, organisations will look to leverage “homegrown” supply routes, so all suppliers feeding into your supply chain will be located within the country in which your organisation is based, or the supply chain can be even closer into your organisation and may even be within the same city or district, which often gives clearer visibility of the whole supply chain from raw material through to the consumer.”
The benefits of global sourcing
Now we’ve defined what a global supply chain is, let’s take a look at the benefits, of which there are many:
Cut costs
It should come as no surprise that many procurement decisions are to a greater or lesser extent driven by cost. A host of organisations choose to source globally thanks to lower labour costs, particularly those associated with the manufacturing of products but also those around the provision of services. The relative value of currencies means that there are many countries around the world where a salary equivalent to a few pounds sterling a day is enough to provide a tolerable standard of living.
While there might be negative connotations associated with sourcing lower-cost labour, supporting a low-cost country with work positively contributes towards the economy and supports the creation of new jobs and opportunities.
Improve expertise
By working with a global supply chain, organisations 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 offerings.
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
As mentioned above, one of the undeniable benefits of global sourcing is its contribution to the growth of the economy in developing countries, fuelling education, reducing poverty, and establishing better living conditions.
The drawbacks of global sourcing
While we recognise that there are several benefits to global sourcing, we’re not blind to the associated drawbacks. What many might fail to consider is the fact engaging in global supply chains involves the introduction of different cultures, currencies, and time zones. This can lead to unanticipated disruption through the likes of political strikes and disturbances, or natural disasters.
Time to use
Despite the fact overseas production might be quicker, the lead time can often be much longer as the goods will require shipping, which of course adds time to the procurement process. Take for example the blockage of the Suez Canal between 23rd March and 29th March 2021. Thanks to the fact approximately 12% of global trade, which equates to around one million barrels of oil and 8% of LNG, passes through the canal every day, the impacts of such a blockage are stark. Data from Lloyd’s List estimated that the hold-up cost trade around $6.7m a 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 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 so now over 80% of UK PPE is produced on home soil.
Reputational risks of global sourcing
Perhaps one of the biggest concerns of global sourcing is the fact it can increase reputational risks for your business and could expose your organisation to modern slavery.
There exist fundamental basics 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, and wider issues such as child labour.
Regarding this, The Ethical Trade Initiative advises that:
“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 labour 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 in terms both of frequency of occurrence 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 and the buyer may not be able to oversee the production process face to face as 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 NHS sourced PPE from Malaysia’s Supermax, which had won a £316m contract with the health service but it was subsequently discovered that the US “forbade the company from selling its products after an inquiry found ample evidence that it had used forced labour in the manufacture of its rubber gloves.” The UK Government has now launched its enquiry 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 UK company’s supply chain and responsibility sits ultimately with the UK supplier to ensure that their 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 helps you deliver an in-depth evaluation of strategic supplier performance. To improve the efficiency of your organisation’s supplier management, make sure that you are using the latest technology that will deliver an in-depth evaluation of strategic supplier performance.
Call upon comparison data
Undoubtedly one of the most effective tools in your armoury, comparison data allows for the analysis and tracking of information throughout the supplier management process. Similarly, it works to assist with the identification of supplier risks and areas for improvement. Your organisation can use this to inform decision-making when it comes to future tenders.
Record supplier performance
Do you want to know the right people to work with? Well, to do this, 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 the supplier’s performance? Well, collating the different types of data means that your organisation can achieve a deeper understanding and the suppliers it should be working with.
The sheer scope of public sector organisations’ requirements means many rely on what is known as a global supply chain – this involves buyers across the world procuring both goods and services from suppliers in destinations throughout the world, whether directly or as part of the wider supply chain of a UK-based supplier.
For more information on what Delta can do for your business and for a better understanding of why so many businesses choose to partner with us, book a demo today and take the first step in maximising the value of every one of your transactions.
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