Introduction
Global logistics, as the name well suggests, is a short form of global supply chain, which allows companies to expand beyond their domestic markets. Often considered as an extension of the domestic supply chain, global logistics work in accordance to a certain set principles, which in turn, govern and decide the overall success of the international supply chain. The overseas market, which is also referred to as a defensive mechanism for the domestic markets is driven to perfection through information technology and the World Wide Web. While regional expertise in technology is one of the main reasons for companies opting to expand their existing base to overseas locations, the production and research is also linked to political and economic factors, such as tariff rates, inflation, and trade agreements. Risk management is essential as unpredictable events have been known to disrupt the supply chain (Haneef, 2008)
If risk management is not taken seriously, it would influence your business in a negative manner. Supply risk chains are further subdivided into two categories. The first is the unpredictable and unquantifiable risk, which is denoted as unknown-unknown, while the second is known as quantifiable risk, which in turn is denoted by known-unknown.
Literature Review
Contingency planning and risk management is not a new term and individual companies are well aware of this phenomenon. There is also a storehouse of literature, which is freely available throughout the internet. Firm focus on strategic management, international business, economics, finance and insurance, is essential to govern the supply chain in a smooth manner. The rise in demand for international products and the rapid growth of capital markets, have given rise to the concept of the Global Food Chain. Whenever we talk of a global supply chain, we need to understand that there are several concerns which need to be taken case off.
Typically, an international firm is highly dependent on the existing logistical, economic, cultural, political and infrastructural factors, in order to emerge as a potential candidate for accomplishing a profitable venture.
A Global Supply Chain needs to be well coordinated in terms of the flow of goods, services and cash, within and beyond national boundaries (Mentzer, 2001). Whenever a firm wishes to maximize its profits, it seeks locations wherein, it can reduce manufacturing, procurement as well as assembling cost. The manufacturing units are then set up in low cost countries, while the products are sold in highly commercialized demand centers (Manuj & Mentzer, 2008).
Risk management is essential to ensure a hassle free global supply chain. Sudden turn of events, such as 9/11 attacks, the SARS epidemic, hurricane Katrina and Rita, can drastically affect a particular member of the supply chain, which in turn would interrupt the operation ability of the other members of the supply chain. Hence, while implementing risk management strategies, it is imperative that you study the entire supply chain, across all the countries.
Theoretical Framework
The firm-to-fin supply chain model has gained prominence in recent times owing to the revolutionary new business concepts, which, as the statistical data clearly reveals, is very different from the rigid business paradigms of the 1990’s. While there are various theories which evaluate supply chain links, two particularly inserting thought streams have become the sole source of describing inter-firm links on a broader perspective.
First, articles based on the domain of marketing and the existing supply chain management, are considered an efficient means of describing inter-firm supply chain. In this scenario, the duration, quality and the type have been regarded as key indicators of a company’s overall performance (sebestiao& Golicic, 2008). Nonetheless, you can still generalize the rational concepts of the supply chain. It needs to be noted that the combined impact of such inter-firm relationships has never been categorized as a part of serious literature.
The second approach aims at studying the supply chain membership, the addition and removal of firms, structural mapping of the existing supply chain model and finally, the effective management of a cluster of supply chain connections (Cooper, Lambert& paga, 1997b). Nonetheless, there is no best module for the study of supply chain and factors pertaining to environmental conditions, characteristics of production and the overall size of the firm, have been identified as “unavoidable risk factors” (Gulati and Gargiulo, 1999).
The Major Challenges in Global Logistics
According to inderscience news owing to a rapid increase in international trade, various multinational companies are forced to cope with the logistic challenges of transporting their goods to an overseas destination. Some of the major logistical challenges include:
- Cross border transportation with regards to separate rules and regulations
- Reverse movement of returned products
- Usage of free trade zones and overseas warehouses
- Selecting the ideal means of transportation
- Choosing the most convenient points of entry and departure
- Selecting ideal distribution hubs
- Selection of ideal transportation hubs
- Developing global transport network
- Ensuring a safe and secure transportation
- Analyzing the supply risk chains from a global perspective
- Resolving contractual disputes arising from international rules and regulations
- Updating knowledgebase on cross cultural negotiations
It is indicated in the inderscience news that these challenges led to the introduction of a set of guidelines, which were used as a rule book to ease the hassles of a sloppy logistical glitch. The above mentioned challenges started being met with a firm hand and companies of international repute started to realize the true potential of seeking a suitable solution through common consensus. This approach led to a quick resolution from seemingly Herculean problems and the approach thus applied, eased the risk on the global supply chain as a whole.
The 4 Step Approach to Success
With the complication in the procedures of the global trade, business from all across the globe, with special regard to those who are habitual of shipping their freights across borders, need to realize that in order to achieve success in a potential venture, you need to follow the “strategy to success”. Listed below are 4 tips which can bale a business from potential logistical risks (Richer, 2009)
Step-1
You need to realize that while the rules are the same, the compliance team is not always the same. While most companies globally import and export freight, the fact remains that that in this process, they tend to sideline the related departments. This needs to be avoided at all costs. (Richer, 2009)
Step-2
The second most important aspect is to choose the location with care. Over here, the compliance team is symbolic to the reporting structure of an organization. The importance of developing an import export compliance team is considered as essential as formulating the principles to govern the creation and development of the taxation department. (Richer, 2009)
Step-3
As there are various departments which directly or indirectly affect the customs transactions, professionals within the organization need to develop their interpersonal skills, so as to influence the concerned department without any use of unnecessary force. (Richer, 2009)
Step-4
The fourth step is to improve the technical expertise. Over here, you need to take special care of the production, transportation, inventory, custom clearance and the location. Most companies work as an individual and have no knowledge regarding inter-departmental functionality. In order to enable a smooth functioning of the global supply chain, it is imperative that departments within an organization have constant interaction. (Richer, 2009)
Conclusion
The objective of this paper was to bring together a few challenges which are being faced while handling supply chain management, along with a few critical risk factors that may affect the domestic as well as the global supply chains. Few recommendations have also been given in the paper that how a company can successfully establish global logistics by implementing 4 step approach to success in an organization.
References
Cooper, M.C., Lambert, D.M., Pagh, J.D. (1997a), “Supply chain management: more than a new name for logistics”, International Journal of Logistics Management, Vol. 8 No.2, pp.1-14.
Global logistics. (2008). Web.
Gulati, R. &Garguilo, M.(1999). ‘Where do inter organizational networks come from? , American Journal of Sociology, 104 (5), pp. 1439-1493.
Haneef. (2008). Global logistics and risk management. Web.
Manuj, I& Mentezer, J.(2008).Global supply chain and risk management. Journal of Business Logistics. Web.
Mentezer, J.T., DeWitt, W., Keebler, J.S.Min, S. et al. (2001).Defining supply chain management. Web.
Richer, S. (2009).Global Logistics: 5 Steps to upgrading your compliance program. Web.
Sebestiao, H. J. & Golicic, S. (2008). Supply chain strategy for nascent firms in emerging technology markets. Journal of Business Logistics. Web.