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This essay analyses the key view point of the standard "business as usual" approach to developing the global supply chain in utilising the global marketplace. Discuss and debate whether global supply chains are a sustainable approach to doing business through a literature review.
However, before the standard "business as usual" - globalization approach and its sustainability is discussed, the definition of globalization must be stated and in depth analysis of its impact must be conducted.
The concept and importance of globalization and business as usual approach has been debated and described at length in various literatures. (Bhalla, 2002). Although the term "globalization" is widely used in public debates, it means different thing to different people. In some instances it has been defined as connectivity between people, business and countries around the globe, Friedman (2008). Friedman (2008) added that with globalization "information and money flow more quickly than ever". Goods and services produced in one part of the world are increasingly available in all parts of the world. While this is true, on another article, Friedman (2009) added that "Globalization can be incredibly empowering and incredibly coercive". Globalization has dangers and an ugly dark side. However, it can also bring tremendous opportunities and benefits. (Friedman, 2009)
The globalization at its core makes the countries boarders less important, as they become dependent on each other to thrive, Carter & Rogers (2008).
Although the term "globalisations" is widely used in public debates as mentioned above, its concept may not be new; it is having a changing effect the way business organisations operate. (Walsh, 2009). However, some academics and professionals argues that the nature of the globalisation may be different from develop and developing countries, (Bhalla, 2002). It has been argued by Manuj and Mentzer (2008) that global supply chains are source of competitive advantage. It provides access to cheaper labour, raw material, technology, etc, (Alhashim, 1980; Kagut and Kulatilaka, 1994) as cited by Manuj and Mentzer 2008.
For quite a lot of organisations the world is a global market place and globalization is just a way to go. As argued by Manuj and Mentzer (2008), organisations chase cheaper materials from countries like China and India or wherever and get their logistics network booked up, and basically this is the way they have structured their business and strategies. The big challenge today, is whether this approach is sustainable at longer term. (Mason-Jones, 2009; Lee, 2009).
It is important for companies to understand the globalisations challenges if they want their business to maintain its competitiveness and effectively compete against rapidly emerging markets on both long and short term scale, Pedersen (2009).
Most organisations chase the globalisation option because it is cheaper. (Davis et al, 2007)
With the recent economic global crises and decline on oil price, large companies, leaders and followers (forward thinkers) are starting to analyse the issue of global Supply Chain and its sustainability, Pedersen (2009). Pedersen (2009) on his recent article refers to social responsibility, economic and environmental prosperity as the main drivers for "sustainability" in the global Supply Chain.
Environmental regulations, consumer sentiment, environmental non-governmental organizations pressure, global warming concerns and economics will drive the Supply Chain sustainability movement for the companies, added Pedersen (2009).
The challenge is most organizations use sustainability word to express different thing. In term of how "sustainability" is defined, the most well-adopted and most often quoted definition of sustainability is that of World Commission on Environment and Development (1987, p.8); "â€¦development that meets the needs of the present without compromising the ability of future generations to meet their needs". (Markley and Davis, 2007)
Lovell (2009) as referred to in by Mason-Jones (2009) argued whether the idea of Global Supply Chain sustainability is a flawed assumption. Lovell (2009) stated that "there is a criminally flawed assumption held that we can continue with business-as-usual models because technology will bails us out". However, in his research, Lovell (2009) found out that many organizations are just carrying on with traditional strategies of "business as usual" because they just believe that somehow there is technology solution out there that will solve this globalizations sustainability issues, (Lovell 2009).
The challenge that many organizations face today, is that may be the technology will not be there to solve all the sustainability issues, Lovell (2009).
Pedersen (2009), sees sustainability as promoting a "safe environment", as being "green".
Wiehl (2009) stated that "Sustainability is not only good for the environment, is good for the long term profitability of the business too". While Christopher et al (2006), added that getting your global supply chain sustainable at longer term, is not only a responsible choice, but it makes a good business sense too.
But this terminology "sustainable" also has "robustness" angle. The focus for most companies today is the development of a sustainable supply chain - one that is robust enough to support itself and actually improve the environment. Penfield (2008).
The two components of the terminology of sustainability, greenness, as well as the robustness could be associated with risk. (Christopher, 2009). A lot of companies utilize huge logistical network, Supply Chain that is far too complex to understand, the "zigzagging" on the logistics networks all contributes to the risks that the current Global Supply Chain poses to the business world, Mason-Jones (2009). Lalwani et al., (2006:5) define risk as "...the possibility of bringing about misfortune or loss while uncertainty is associated with those things that are not able to accurately known or predicted".
With global supply chain, the possibility of things going wrong is higher and often more costly to fix. Security, port issues, tax and tariff issues, cultural difference, requirement to partnership with local expert, just to name few of the challenges, (MacDonald, 2006)
Manuj and Mentzer (2008) added, however, some organizations are even probably going through politically unstable areas to source goods and services, where they can loose that link quite easily, due to political issues, finance issues, etc. It has been suggested (Lowson, 2001) that for the UK retail industry the move to global sourcing can quadruple the time from "order to delivery" and in some cases this dramatically increases the supply chain risks, (Christopher, et al, 2006)
In the other hand, CNN (2009) on their article Trick or Truth, reported that environmentalists are starting to put pressure to two USA and China States, to implement a regulation that imposes higher taxes to carbon emissions and regulate the declaration of the carbon footprint on the product and services produced in those countries, (cnn.com). However, Lomborg (2009) argued that the politician's promises on cutting carbon emission will not work. "It has been promised 18 years ago in Rio, and nothing happened" added the Political Scientist, (cnn.com, 2009). The issue is not on carbon emission cutting, it is about the technology to measure the carbon footprint and the process to penalise those that exceeds their limits, added the expert (cnn.com, 2009). The other analyst believed that if government starts to introduce taxes to encourage companies to cut emissions, it may help to promote green business, (cnn.com, 2009).
Every organization will have to pay the true cost of energy that they are consuming and the true cost of environmental damages they are causing, Friedman (2009). Again, the issue is about the technology to measure the quantity of environmental damages, or carbon emission quantities, (cnn.com, 2009). As these pressures evolve, and as consumers start changing their consuming patterns, chasing for cheaper options in global market may not be any longer sustainable. Most organisations are chasing globalisation because it is cheaper. "It may be cheaper right now" because business are not being charged any form of "green charges" and as time goes on and the pressure continues for government to start implementing additional charges for damages organisations are causing to the environment, sourcing from "red" countries may not be a cheaper solution anymore (Mason-Jones, 2009; Friedman, 2009).
The feeling is that organizations have got to look at how the business is constructing their networks, before government step in and start charging heavy fines for behaviours, (cnn.com, 2009; Mason-Jones, 2009). Lovell (2009) stated "â€¦be ahead of the curve and do something creative now".
Another example of "business as usual" strategy sustainability, come from Dell Computer. In 2004-2005, Dell Computer decided to Outsource the Call Centers to India, because it was regarded to be cheaper, at expenses of thousands of American citizens jobs. DELL had three call centers in India until 2007 accounting for a potential loss of over seven thousand American jobs. (Ribeiro, 2004).
Michael Dell, Chairman and CEO of DELL has made it clear that the outsourcing will stimulate foreign economies while not mentioning the implications to the domestic labour force.
Some U.S. customers have complained that the Indian technical-support representatives are difficult to communicate with because of thick accents and scripted responses. After an onslaught of complaints, Dell Inc. (DELL) has stopped using a technical support center in India to handle calls from its corporate customers. The cost of reallocating Dell business back to US, was tremendous. (Landon, pdatoday.com, 2009).
This centers on the idea that corporation may be held socially responsible and ethically accountable for the totality of its supply chain behaviour by an expansive array of stakeholders; the global community as whole, consumers, government, NGOs, regulators, the media, unions, members of the supply chain, even the future generations are going to demand the "total ownership" for whatever organizations does, produce or consume, argues Andrew Shapiro, founder and president of GreenOrder. (Friedman, 2009).
However, not only government will start demanding companies to pay a "green" tax for organizations behaviours, but this centers also in the Corporate Social responsibility of the firm, (Maloni and Brown, 2006).
In the other hand, while some companies did struggle in moving their business to cheaper countries, IBM for instance, has succeeded in expanding their business in India. Currently they have more than 43 000 employees in India representing US$6 billion investment (CIPS, Globalisation White Paper, 2007). Christopher et al (2006) argued that it is increasingly accepted that "one size does not fit all" when it comes to design the supply chain strategy to support a wider operations from different locations.
Lee (2009) stated that "more than ever, working environmentally sustainable elemnts into your supply chain is essential to good businessâ€¦this is time for companies to retool their supply chains so they are ready when markets expand again".
However, this idea of aligning global supply chain strategies with practices that are socially acceptable by the stakeholders to promote a "green" or sustainable supply chain is not the only challenge that Global Supply chain faces today. (Hameri and Hintsa, 2009).
The lead time is another big challenge that businesses organisations face when sourcing from global markets, (Christopher et al 2006). In many markets, time has become a competitive advantage variable. Blackburn (1991) as quoted in by Christopher (2006), argued that business organisations needs to take decisions ahead of months and this contributes to the risk that is incurred through lengthened lead time. (Christopher et al, 2006).
In fact, the bullwhip effect is another issue, which is worse in global supply chain. By ordering from overseas, companies are adding more time, more risk and makes the supply chain slower and reducing the speed, Lee et al (1997). Because customer demand is rarely perfectly stable, business must forecast demand in order to properly position inventory and other resources. Lee et al (1997).
Lee et al (1997) added, forecasts are based on statistics, and they rarely perfectly accurate. Because forecast error are a given, companies often carry an inventory buffer called "safety stock". Ordering from overseas requires huge quantities of stock on transit, unless organisations have a massive warehouse, they are ordering goods every three months to support the operations which contributes to the bullwhip effect, Mason-Jones (2009).
In recent article, Webster (2009) argued that as now the crises is beginning to arise in the oil industry, companies are beginning to change their behaviour. Webster (2009) looked to the whole range of issues, and he looked at reduction of the mileage that are being travelled, now obviously within that one can argue that this is not only the price of oil price that is hurting, but fundamentally what organisations are starting to see is consumers starting to change their behaviour as well, Webster (2009).
Webster (2009), added that, business are starting to look into how to ensure that they have value preposition with other companies to avoid that tracks are running empty. "You share the costing of tracking and you share the insurance for loading as far as you can" , argued Webster (2009).
So, this idea of cost was picked up by Woodburn (2008). Even if organisations do not change their behaviour as part of their normal business strategies, suddenly they are going to start changing due to shipping cost, Manuj and Mentzer (2008). Barry (2004) argues, "An enterprise may have lowest over-all costs in a stable world environment, but may also have the highest level of risk - if any one of the multiple gating factors kink up an elongated global supply chain!"
The Kewill report (2008), basically shown after interviewing a lot of transportation companies, it is really cheap transport that has encouraged the business as usual strategy, so within the current globalisation mentality. In the global market everything is available to everyone. It makes a lot of sense because transportation has been relatively cheap; the unit cost was a benefit to chase, Kewill Report (July 2008).
One of the fundamental idea that come out from Kewill Report (2008), is that, people would continue to explore a great solutions, but is only when something hurts, that one is probably more likely to do something immediately different. Business will continue to practice what was deemed to be a bad practice if it continues to have a cost benefit to their business. Kewill Report (2008)
This has been evidenced with the recent economic crises, where the profit margin of organisations started to be affected by the global financial crises and the globalisations strategies started to be questioned, Pedersen (2009).
Some companies have started looking to their global networks or logistics travelled, as the transportation cost per unit starts to be almost out of weighting which requires increase on quantities ordered to benefit from economy of scale. When the unit cost of the product importated does not justify, companies need to buy more to minimise the importation cost, Woodburn (2008).
Interestingly back in 2001, Hummels (2001) was talking about the large stocking held in the supply chain and the impact of that can have. This is a big misconception that many companies have today, because product is moving is somehow not stock and even companies do not have methods of measuring goods in transit, they all measure goods stuck in the warehousing, but not goods in transit, Hummels (2001). As he pointed out that this is all stock in the system, Hummels (2001).
Steven (1990) highlighted that stock is what is stored in the system. Steven theory is about to look into the totality of the true supply chain performance, as suppose to what is going on to one organisation. Just because is on move, does not mean is not a stock (Steven, 1990).
However, the concept of continues pipeline; information pipelines and material pipeline, emphasise the point that no matter where the product is within the pipeline and who owns it, it is in the material pipeline, therefore is a stock, Varma (2006).
A Logistics Council research found out that there is far more stock in supply chain right now because of the distance that companies are moving goods. Companies have to bring an extra stock to accommodate the extra time that it takes, plus the bureaucracy of customs clearance in some countries, Mason-Jones (2009).
Contrary to what most of researches today states about the sustainability of the global supply chain, McDonald (2006) pointed out that the truth is there are fewer solely domestic companies left today.
To maintain the competitive advantages sometime multinationals firms needs to source beyond their local boundaries, Mentzer and Giunepero (1984). It could be because there is no local supplier that provide what an organisation need or the local supplier cannot do it the way the organisation need them to do it. (Christopher, 2006).
For some categories of products, essentially those identified by Fisher (1997) as innovative and /or critical, companies may have not any choice to buy them locally rather than source them from the global market. (Christopher, 2006). The oil industry, for example, found this to be so, with its high technology equipment that cannot be manufactured from remote areas where they operates. (Mailonline, September 2009). Another example of this is the move also of manufacturing of big offshore platforms from North America to Korea, Singapore. The decision was based on supply chain cost related (Bin, 2003).
Some researches have suggested that the cost is not the only reasons why companies sources from overseas. It is also related to availability in local market, technology and spreading the risk. (Hameri and Hintsa, 2009)
However, various authors have emphasised that, while sustainability "greening" of the global supply chain makes a lot of sense, but organisations cannot always find sustainable solutions from local market (CIPS, Globalisation; White Paper, 2007).
Nevertheless, Lovell (2009) approach of companies being creative and start do something creative now to be ahead of the curve, suggests that those companies that are committed to positive and responsible buying practices will be rewarded in longer term. They may create trusting and stable relationships with suppliers, improved security and quality of supply, greater consumer confidence, higher levels of investor's confidence and lower reputation risk, Lovell (2009). But the challenge is, these benefits are difficult to measure and green solutions, as discussed above, are not always possible.