Public sector organisations rely on global supply chains. Governments across the world procure goods and services from suppliers with complex and far-reaching supply chains.
Because of the scale and scope of public procurement, governments and public bodies should weigh up the advantages and disadvantages of operating with a global supply chain. Although there are several advantages of working with global supply chains, there are also risks involved.
Learn more about global supply chain management below.
What is a Global Supply Chain?
Globalisation has meant that supply change management has undergone many changes in recent years. Global supply chains are networks that can span multiple continents and countries for the purpose of sourcing and supplying goods and services.
These supply chains are an integral part of the flow of information, processes, and resources across the globe.
Supply chain management covers almost all business activity including marketing, manufacturing, purchasing, logistics and more generally such activities as finance, personnel, whereas global supply chain management involves planning how the entire supply chain will function as an integrated whole, including:
- Generating an exceptional level of customer
- Cost efficiency
- Product delivery – increasing the speed at which your product reaches your customers
- Flexibility in dealing with customer transactions
The Chartered Institute of Procurement and Supply (CIPS) has compared global supply chains 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 state/city/district, which often gives clearer visibility of the whole supply chain from raw material through to consumer.”
The benefits of global sourcing
There are many benefits of global sourcing. Global supply chains let organisations stretch, as they can reach goods that they otherwise would not be able to access.
We list the main benefits of global supply chains below:
Reduced cost price
Cost has always been a factor in procurement decisions, and it is one benefit of using a global supply chain.
Many organisations choose to source internationally due to lower labour and operating costs linked to the manufacturer of the products.
Sourcing from a low-cost country means that the procurement organisation is contributing positively towards an economy supporting job opportunities, and in some cases training opportunities.
Supplier development
Working with a global supplychain, it is often possible to support specialist product offerings leading to:
- Opportunity to increase innovation
- Sharing expertise and upskilling a new market/workforce
For example, the MOD is one of the biggest public procurement organisations in Europe, managing some of the most complex and technologically advanced requirements in the world.
MOD customers include our Armed Forces and national security agencies. The MOD wants to encourage innovation and has set up a new Innovation Fund (£800m over 10 years) to encourage better collaboration with industry, academia and allies, and target new providers to boost the competitive advantage of UK defence.
Increasing competition
We are living in the digital age and sourcing products and services internationally has never been easier.
Global supply chains give public sector buyers the opportunity to take advantage of the strengths and innovation of other countries, which keeps supply chains both current and competitive.
What are the disadvantages of global sourcing?
Although there are many advantages of using overseas suppliers, there are risks involved in global sourcing.
Whilst engaging in global supply chains offers benefits, sourcing globally involves the management of different cultures, religions, and time zones as well as ethical good practice and different currencies.
Longer lead times
This is one of the most obvious challenges of a global supply chain.
Overseas production time may be quicker; however, the lead time can often be much longer as the goods will require shipping, which of course adds time to the procurement process.
Lead times have been a major concern for supply chains during the Coronavirus pandemic. As the COVID-19 virus spread from China and then quickly over to European countries like Spain and Italy, infrastructure and networks of supply chains were disrupted internationally. China was affected particularly badly as roadblocks and factory closures led to empty shipping containers stacking up in Chinese ports, causing a knock-on effect of shortages of containers in other parts of the globe.
Reputational risks of global sourcing
Global sourcing can increase reputational risks and could expose your organisation to modern slavery.
Risk management should always be considered when purchasing from a low-cost country. It is fundamental that public sector purchasing professionals lookout for signs of unacceptable practices in the supply chain such as fraud, corruption, modern-day slavery, human trafficking, and wider issues such as child labour.
Buyers should always demonstrate integrity and take the time to understand the fundamentals of ethical behaviour when selecting and managing suppliers. This includes having a policy in place that will help your team to ensure that the products/goods and services that they are procuring are produced and delivered ethically and responsibly.
The Ethical Trade Initiative advise 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”
If a supplier is based overseas it is very hard to keep absolutely fool-proof checks on their practices – the supplier can say they are behaving ethically but it is not always possible to check this. In recent years even very high-profile tech suppliers have been hit with modern slavery claims.
The Thomson Reuters Foundation reported that world’s largest tech companies have been accused of being complicit in the death of children in the Democratic Republic of Congo (DRC) who were forced to mine cobalt, a metal used to make telephones and computers.
A legal complaint on behalf of 14 families from Congo was filed by International Rights Advocates, a US-based human rights non-profit, against Tesla Inc, Apple Inc, Alphabet Inc, Microsoft Corp and Dell Technologies Inc.
Exchange rates
Another disadvantage of global sourcing is fluctuations in exchange rates. According to CIPS:
“Global markets are more susceptible to regional influences that can impact trading markets.
Distance and Loss of control
Global sourcing means that buyers will have a long-distance relationship with their suppliers.
Time zone differences can cause communication challenges and the buyer may not be able to oversee the production process face to face as a site visit may not be possible. Due to these issues, quality compromises may have to be made.
Some supply chains span multiple countries, which means that unrest, natural disaster or some other crisis – such as Coronavirus – in other countries could have a direct impact on your supply chain activities.
How has Coronavirus affected global supply chains?
As we have mentioned above, the Coronavirus outbreak has affected supply chains across the world. The pandemic has had a significant impact on businesses across all continents as many suppliers are struggling to meet their contractual obligations, putting their financial viability, ability to retain staff, and their supply chains at risk.
As many countries have experienced “lockdowns”, many businesses have had to close. If suppliers could not obtain the right equipment and supplies from their supply chain, both the procurement process and work on existing contracts came to a halt.
The risks of global supply chains have been exposed during the pandemic. IMD Business School Professor of Strategy and Supply Chain Management, Carlos Cordon, has said that during the pandemic:
“The supply chain has become a main protagonist everywhere; it has moved from playing a “behind the scenes” organizational role to being a prime driver of the company business…
As volumes become more variable, Supply chains must become more adaptive, especially if, as forecasts suggest, large suppliers and logistics operators in the supply chain industry must prepare for major catastrophic events such as weather events (fires, flood, tsunami), lethal pandemic outbreaks, strikes, social unrest and associated disruptions.”
Ensure efficient supply chain management
Whether you are working with a global or local supply chain there are a few ways your organisation can improve efficiency:
Supplier management software
To improve the efficiency of your organisation’s supplier management, make sure that you are using up-to-date technology that will deliver in-depth evaluation of strategic supplier performance. Delta eSourcing’s supplier management software allows buyers to compare strategic suppliers against others.
Comparison data
Comparison data is incredibly important as it allows your organisation to analyse and track the information it needs throughout the supplier management process. On top of this, it can also assist with the identification of supplier risk and finding areas for improvement. Your organisation can use this information for future tenders.
Supplier performance
Another supplier management top tip is to record any standout supplier practices as suppliers that achieve outstanding practice are the type of business you should increasingly aim to work with. This enables you to consider ways to extend the working relationship.
Collating these types of data means that your organisation can achieve a deeper understanding of the market it is working with and the key suppliers that it should be working with.
How can Delta support global supply chain management?
One of the biggest obstacles public sector organisations will face when sourcing globally is challenges in communication.
Whether your organisation is working with domestic or international suppliers, it is crucial that it balances auditing practice with relationship management and supplier management software can support your organisation to do this.
Not only will supplier relationship management software support your employees to discipline your organisation’s processes, but this software will also help your procurement team to strategically plan and manage interactions with suppliers.
As a buyer may have hundreds or thousands of suppliers on their list, managing them and ensuring that they are following ethical policy could prove to be a huge burden on resources for some organisations.
Supplier management technology can support your business to achieve ethical procurement. Make sure you are using your eProcurement tools to consolidate, audit and analyse supplier capabilities.
Supply chain management has never been easier. Delta’s Supplier Management tool provides an easy supplier/vendor management service which drives suppliers to a single central hub where they register, store, and manage their details and to which buyers have instant access. The list building functions provide buyers with the ability to create and manage lists of suppliers.
Achieve your procurement goals with Delta eSourcing
We can support your organisation’s global supply chain strategy.
Communication is vital when it comes to global sourcing. Delta’s numerous modules, including Tender Management, Supplier Management and Workspace Manager – allow buyers and suppliers to engage with each other to achieve greater efficiency in all aspects of the tender process.
The Tender Management module enables relevant users in an organisation to access all tender documentation and information on project progress, no matter where in the world they are. One specific feature of the module effectively streamlines the communication throughout the procurement process by having one place where suppliers and buyers can engage, delegate tasks and track progress through an admin hierarchy. With set permission levels for administrators, supervisors, registered users, evaluators and auditors, the roles determine the varying functions that users can and cannot perform in Tender Manager.
For example, an administrator can invite users, move assets, and publish notices, whereas an auditor’s privileges are set to read only. This is one example of how Delta eSourcing’s service is intuitive, adaptable, and flexible, with every element designed to drive efficient procurement for public sector suppliers.
Find out why thousands of public sector buyers choose Delta eSourcing today with a free demo.
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