Companies are launching themselves into global sourcing in the hope of securing lower unit costs for manufactured goods without necessarily fully understanding the risks involved. On the face of it the results can look impressive, but companies need to take a holistic view of their supply chain if they are to create a sustainable source of competitive advantage.
The rewards can be great, but then so can the risks. The key would seem to be in understanding the challenges involved.
The Economist Intelligence Unit briefing paper ‘Global supply chains: Understanding risks and rewards’, sponsored by Oracle, highlights some of the key issues facing leading companies operating global supply chains. The report draws on examples from such companies as Toyota, Dell, Boeing, Wal-Mart, and Dow Chemicals, to illustrate how organisations can create structures to take advantage of low cost manufacturing whilst mitigating risk.
The report cites how effective supply chain management across a global enterprise is not a discrete process of choosing suppliers, negotiating procurement contracts, arranging transportation and logistics and then delivering products to customers. It requires building organisational structures that incorporate supply chain discipline at the earliest stages of designing or planning a product or service, building strong relationships with suppliers and providers of transportation and logistics, and deploying tools to enable information to flow efficiently in all directions along the supply chain.
That all sounds fine, but does it work in practice? Well apparently computer manufacturer IBM has spent the last five years streamlining what is still one of the world’s largest supply chains – consolidating manufacturing sites from 15 to nine worldwide – while at the same time incorporating a centralised supply chain strategy throughout the operations of the $91bn corporation.
If you want to know more about managing risk in the global supply chain it’s worth reading the full EIU report.