Globalization made supply chains global as opposed to local sourcing. Global supply chains became an integral part of businesses increasing their competitiveness. But global supply chains did not only bring benefits but also exposed companies to more challenges. Some of those challenges are obvious, while others are subtly threatening businesses.
The Globalization of Supply Chains
This globalization trend appeared in the last three decades due to the increase in tradable goods and services. Tradability means producing specific products in places far away from the final market, and it depends on transportation costs and the perishability of goods.
But along with the skyrocketing competition, so did the demand for goods. As trade barriers worldwide began to diminish, it led to a global supply chain race signaling the beginning of the new gold rush era. But this time, it was not gold, but lower labor costs, materials, land, and others offered by countries like China.
But there was a problem since companies put all their eggs in one basket. They became overdependent on specific countries or regions of the world without proper supply chain risk management. Then, the pandemic was a harsh reminder with severe consequences for businesses why someone must not rely on a few suppliers.
The challenges of global supply chains
Finding low prices in Asia was never an issue, but there are other problems of a different nature. Right now, to ensure a good supply chain, these issues need to be resolved. To address them, companies need to identify those challenges and then deal with them strategically.
Here are the top challenges that businesses have to face in global supply chains in 2021:
1. Black swan events
A black swan event is almost impossible to predict and prepare for, and the pandemic is such. With the world’s dependence on Asia for manufacturing and transportation of goods, it harmed global trade for months as soon as China shut down its plants. To avoid any similar unfortunate events, companies need to regionalize and source their goods and materials from places that are closer to them.
2. Scarce materials
The pandemic brought an unprecedented demand for goods and inputs still cannot keep up with it leading to delays. Currently, there is limited availability of various kinds of parts and materials on the market, raising the prices worldwide.
3. Expensive freight prices
In such a high-demand environment, the demand for shipping has exceeded the industry’s capacity, and freight prices are on the rise. This creates more headaches for businesses as they need to consider higher transportation costs that further reduce their profit margins.
4. High port traffic
High port traffic means that cargo ships of the global supply chains arrive even though they arrive on time at their destinations, they have to “queue” to unload their cargo due to port congestion. Health measures taken due to the pandemic add more delays to the whole process.
The benefits of a global supply chain network are obvious for businesses, but they should be vigilant of the risks involved. Many of those companies were totally unprepared to deal with the effects of the pandemic. Now, Supply chain managers need to understand their companies’ challenges and reduce their exposure properly.