The Disadvantages of Global Supply Chain Management
When you have a global supply chain, you get the benefit of choosing manufacturers, suppliers and shippers from around the world. When managed well, such a supply chain can help your business stay competitive, reduce production and inventory costs and open up opportunities in new markets.
However, disadvantages of supply chain collaboration on a global scale stem from differences in languages and standards, various types of uncertainty and financial risks. It also takes more managerial expertise to choose the right businesses with which to work and successfully handle a global supply chain.
The disadvantages of global supply chain management include instability, differences in standards and regulations, language and communication barriers, harder planning and financial challenges.
Having issues such as political unrest, natural disasters and economic downturns impact your supply chain is one of the disadvantages of supply chain collaboration on a global scale. These issues can cause difficulties sourcing the products, materials and supplies you need when businesses have to close down or are unable to transport goods. This can lead to you not having enough inventory to fulfill customer demand and can hurt both your sales and customer satisfaction.
You also have to consider your customers who may have their orders delayed due to issues beyond your control. Customs problems can block shipments at a certain port, while natural disasters can make it impossible for local postal services to deliver your customers' orders on time.
Managing a global supply chain requires you to understand laws and standards in multiple countries since customs can vary widely. For example, you face risks when you produce your patented product in a country that disregards intellectual property laws since your design might get leaked to competitors.
At the same time, different countries and factories set their own quality standards, so you could end up with products that have a lower quality level than desired. You also have to consider additional ethical issues such as poor working conditions and forced labor when you consider your business partners.
Limitations of international logistics management include having to communicate with companies whose staff might not speak English and who might be many hours ahead or behind you.
This can make it difficult to set up meetings, contact companies about delayed or damaged shipments or simply ask questions. When you do interact, you might have misunderstandings on both sides that can cause delays or result in your accepting an agreement with terms you misheard.
From facing challenges finding the right global suppliers to accounting for the risks and uncertainties planning your supply chain, managers can expect to need a higher level of expertise to successfully manage a global supply chain. You'll need to perform careful analysis when considering global business partners so that you get the best supply chain response time and pricing.
Not only must you consider potential delays due to issues beyond your control but your planning also has to include factors like the time needed to clear customs and variations in the responsiveness of suppliers and transporters to changing demand.
The disadvantages of logistics management globally also include the financial impact it can have on your company. While your company might choose a global supply chain to benefit from lower production costs and boost your profits, you also have to consider the extra competition you gain, and you might find you need to lower your prices more to compete.
In both buying and selling, you also have to prepare to handle working with different currencies, which will come with risks when currency fluctuations happen. Global supply chain management also comes with more complexities when it comes to securing financing and working with different payment systems.