This essay analyzes the cardinal position point of the standard “business as usual” approach to developing the global supply chain in utilizing the global marketplace. Discuss and argue whether global supply chains are a sustainable approach to conducting business through a literature review.
However, before the standard “business as usual” – globalization approach and its sustainability are discussed, the definition of globalization must be stated and an in-depth analysis of its impact must be conducted.
The concept and importance of globalization and the business as usual approach have been debated and described at length in various literatures (Bhalla, 2002). Although the term “globalization” is widely used in public debates, it means different things to different people.
In some cases, it has been defined as the connectivity between people, businesses, and countries around the world (Friedman, 2008). Friedman (2008) added that with globalization “information and money flow more rapidly 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, in 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 enormous opportunities and benefits (Friedman, 2009).
At its core, globalization makes the states’ borders less important, as they become dependent on each other to thrive (Carter & Rogers, 2008).
Although the term “globalization” is widely used in public debates, as mentioned above, its concept may not be new; it is having a changing effect on the way business administrations operate (Walsh, 2009). However, some academics and professionals argue that the nature of globalization may be different for developed and developing countries (Bhalla, 2002).
It has been argued by Manuj and Mentzer (2008) that global supply chains are a source of competitive advantage. It provides access to cheaper labor, raw materials, technology, etc. (Alhashim, 1980; Kagut and Kulatilaka, 1994) as cited by Manuj and Mentzer (2008).
For quite a few administrations, the world is a global marketplace, and globalization is just a way to move. As argued by Manuj and Mentzer (2008), administrations 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 in the longer term (Mason-Jones, 2009; Lee, 2009).
It is important for companies to understand the challenges of globalization if they want their business to maintain its competitiveness and effectively compete against rapidly emerging markets on both a long and short-term scale (Pedersen, 2009).
Most administrations pursue the globalization option because it is cheaper (Davis et al., 2007).
With the recent global economic crises and decline in oil prices, large companies, leaders, and forward thinkers are starting to examine the issue of the global supply chain and its sustainability (Pedersen, 2009). Pedersen (2009) refers to social responsibility, economic and environmental prosperity as the main drivers for “sustainability” in the global supply chain in his recent article.
Environmental regulations, consumer sentiment, environmental non-governmental organization pressure, global warming concerns, and economics will drive the supply chain sustainability movement for the companies, added Pedersen (2009).
The challenge is that most organizations use the term sustainability to express different things. In terms of how “sustainability” is defined, the most widely adopted and most frequently quoted definition of sustainability is that of the World Commission on Environment and Development (1987, p.8); “…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 by Mason-Jones (2009), argued whether the concept of Global Supply Chain sustainability is a flawed premise. Lovell (2009) stated that “there is a reprehensively flawed premise held that we can go on with business-as-usual theoretical accounts because engineering will bail us out.”
However, in his research, Lovell (2009) found that many organizations are merely carrying on with traditional schemes of “business as usual” because they believe that there is a technological solution out there that will solve global sustainability issues (Lovell 2009).
The challenge that many organizations face today is that the technology may not be there to solve all sustainability issues (Lovell 2009).
Pedersen (2009) sees sustainability as promoting a “safe environment” and being “green.”
Wiehl (2009) stated that “Sustainability is not only good for the environment, but it is also good for the long-term profitability of the business.” While Christopher et al. (2006) added that getting your global supply chain sustainable in the long term is not only a responsible choice, but it also makes good business sense.
But this terminology “sustainable” also has a “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 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). Many companies use a huge logistical web, 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 bad luck or loss, while uncertainty is associated with those things that are not able to accurately know or predict.”
With global supply chains, the possibility of things going wrong is higher and often more costly to fix. Security, port issues, tax and duty issues, cultural differences, and the need to partner with local experts are just a few of the challenges (MacDonald, 2006).
Manuj and Mentzer (2008) added that some organizations are even likely to go through politically unstable countries to source goods and services, where they can break 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 instances, this dramatically increases the supply chain risks (Christopher et al., 2006).
In the other hand, CNN (2009) reported in their article “Trick or Truth” that conservationists are pressuring the USA and China to implement regulations that impose higher taxes on carbon emissions and regulate the declaration of the carbon footprint on the products and services produced in those countries.
However, Lomborg (2009) argued that politicians’ promises to cut carbon emissions will not work. “It was promised 18 years ago in Rio, and nothing happened,” added the political scientist (CNN.com, 2009).
The issue is not about cutting carbon emissions; it is about the technology to measure the carbon footprint and the process to punish those that exceed their limits, added the expert (CNN.com, 2009). The other analyst believed that if the government starts to introduce taxes to encourage companies to reduce emissions, it may help to promote green business (CNN.com, 2009).
According to Friedman (2009), every organization will have to pay the true cost of the energy they consume and the true cost of the environmental damage they are causing. Again, the issue is about the technology to measure the amount of environmental damage or carbon emission levels (CNN.com, 2009).
As these pressures evolve and as consumers start changing their consumption patterns, relying on cheaper options in the global market may no longer be sustainable. Most organizations are following globalization because it is cheaper.
“It may be cheaper right now” because businesses are not being charged any form of “green charges,” and as time goes on and the pressure continues for the government to start implementing extra charges for damages organizations are doing to the environment, sourcing from “red” states may no longer be a cheaper solution (Mason-Jones, 2009; Friedman, 2009).
The feeling is that organizations have to look at how the business is constructing their networks before the government steps in and starts imposing heavy fines for behavior (CNN.com, 2009; Mason-Jones, 2009). Lovell (2009) stated, “be ahead of the curve and do something creative now.”
Another example of a “business as usual” sustainability strategy comes from Dell Computer. In 2004-2005, Dell Computer decided to outsource its call centers to India because it was regarded as cheaper, at the expense 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 outsourcing will stimulate foreign economic systems while not addressing the impact on the domestic labor force.
Some US clients have complained that Indian technical-support representatives are difficult to communicate with due to their thick accents and written responses. After a flood of complaints, Dell Inc. has stopped using a proficient support center in India to handle calls from its corporate clients. The cost of moving Dell’s operations back to the US was enormous. (Landon, pdatoday.com, 2009).
This centers on the idea that corporations may be socially responsible and ethically accountable for the entirety of their supply chain behavior by a broad range of stakeholders: the global community as a whole, consumers, governments, NGOs, regulators, the media, unions, members of the supply chain, and even future generations will demand “total ownership” of whatever organizations produce or consume, argues Andrew Shapiro, founder and president of GreenOrder. (Friedman, 2009).
However, not only will governments begin demanding that companies pay a “green” tax for their behavior, but this also centers on the Corporate Social Responsibility of the firm (Maloni and Brown, 2006).
On the other hand, while some companies have struggled to move their operations to cheaper countries, IBM, for example, has succeeded in expanding its business in India. Currently, they have over 43,000 employees in India, representing a $6 billion investment. (CIPS, Globalization White Paper, 2007). Christopher et al. (2006) argued that it is increasingly accepted that “one size does not fit all” when it comes to designing the supply chain strategy to support operations in different locations.
Lee (2009) stated that “more than ever, working environmentally sustainable elements into your supply chain is essential to good business…this is the time for companies to review their supply chains so they are ready when markets expand again”.
However, the idea of aligning global supply chain strategies with socially acceptable practices to promote a “green” or sustainable supply chain is not the only challenge that the global supply chain faces today (Hameri and Hintsa, 2009).
Lead time is another major challenge that concerns organizations when sourcing from global markets (Christopher et al., 2006). In many markets, time has become a competitive advantage variable. Blackburn (1991), as quoted by Christopher (2006), argued that business organizations need to make decisions months in advance, which contributes to the risk that is incurred through extended lead time (Christopher et al., 2006).
In fact, the bullwhip effect is another issue that is worse in the global supply chain. By ordering from abroad, companies are adding more time, more risk, and making the supply chain slower, reducing speed (Lee et al., 1997). Because customer demand is rarely perfectly stable, businesses must forecast demand to properly allocate inventory and other resources (Lee et al., 1997).
Lee et al. (1997) added that prognoses are based on statistics and are seldom absolutely accurate. Because prognosis mistakes are a given, companies frequently carry a stockpile buffer called “safety stock”. Ordering from abroad requires immense amounts of stock in transit. Unless administrations have a massive warehouse, they are telling goods every three months to back up the operations, which contributes to the bullwhip effect (Mason-Jones, 2009).
In a recent article, Webster (2009) argued that as the crises are beginning to arise in the oil industry, companies are starting to change their behavior. Webster (2009) looked at the whole range of issues, including the reduction of the mileage that is being traveled. Now, it is evident that this is not only the price of oil that is hurting, but basically, what administrations are beginning to see is consumers starting to change their behavior as well (Webster, 2009).
Webster (2009) added that businesses are beginning to look into how to ensure that they have a value proposition with other companies to avoid that paths are running empty. “You share the costing of tracking and you share the insurance for lading as far as you can,” argued Webster (2009).
This idea of cost was picked up by Woodburn (2008). Even if administrations do not change their behavior as part of their normal business strategies, all of a sudden, they are going to start changing due to shipping costs (Manuj and Mentzer, 2008).
Barry (2004) argues, “An enterprise may have the lowest overall costs in a stable world environment, but may also have the highest level of risk – if any one of the multiple gating factors kinks up an elongated global supply chain!”
The Kewill study (2008) fundamentally showed, after questioning a lot of transit companies, that it is truly cheap transportation that has encouraged the business as usual strategy, so within the current globalization outlook. 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 trail (Kewill Report, July 2008).
One of the key thoughts that come out of the Kewill Report (2008) is that people will continue to explore great solutions, but it is only when something hurts that one is 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 concern (Kewill Report, 2008).
This has been evidenced by the recent economic crisis, where the profit margins of administrations were affected by the global financial crisis, and globalization strategies started to be questioned (Pedersen, 2009).
Some companies have started to examine their global networks or logistics travel, as the transportation cost per unit becomes almost unbearable, which requires an increase in the quantity ordered to benefit from economies of scale. When the unit cost of the imported product does not justify the cost, companies need to buy more to minimize the importing cost (Woodburn, 2008).
Interestingly, back in 2001, Hummels (2001) was speaking about the large inventory held in the supply chain and the impact it can have. This is a big misconception that many companies have today because products in transit are somehow not considered as inventory, and even companies do not have methods of measuring goods in transit. They all measure goods stuck in the storage, but not goods in transit (Hummels, 2001). As he pointed out, this is all inventory in the system (Hummels, 2001).
Steven (1990) highlighted that inventory is what is stored in the system. Steven’s theory is about looking at the entirety of the true supply chain performance, as opposed to what is going on to one administration. Just because it is on the move does not mean it is not inventory (Steven, 1990).
However, the concept of continuous pipeline; information pipelines, and material pipelines underscore the point that no matter where the product is within the pipeline and who owns it, it is in the material pipeline, therefore it is inventory (Varma, 2006).
A Logistics Council research found out that there is far more inventory in the supply chain right now because of the distance that companies are moving goods. Companies have to carry extra inventory to accommodate the extra time it takes, plus the bureaucracy of customs clearance in some countries (Mason-Jones, 2009).
Contrary to what most of today’s research states about the sustainability of the global supply chain, McDonald (2006) pointed out that the truth is that there are fewer purely domestic companies left today.
To maintain a competitive advantage, sometimes multinational companies need to source beyond their local boundaries (Mentzer and Giunepero, 1984). It could be because there is no local supplier that provides what an administration needs or the local provider cannot do it the way the administration needs them to do it (Christopher, 2006).
For some categories of products, especially those identified by Fisher (1997) as advanced and/or critical, companies may not have any choice but to purchase them locally rather than sourcing them from the global market (Christopher, 2006).
The oil industry, for example, has found this to be the case with its high-tech equipment that cannot be manufactured in distant countries where they operate (Mailonline, September 2009). Another example of this is the move of the fabrication of large offshore platforms from North America to Korea and Singapore. The decision was based on supply chain cost (Bin, 2003).
Some researchers have suggested that cost is not the only reason why companies source from abroad. It is also related to availability in the local market, technology, and distributing the risk (Hameri and Hintsa, 2009).
However, various writers have emphasized that while the sustainability “greening” of the global supply chain makes a lot of sense, administrations cannot always find sustainable solutions from the local market (CIPS, Globalisation; White Paper, 2007).
However, Lovell’s (2009) approach of companies being creative and starting to do something innovative now to stay ahead of the curve suggests that those companies that are committed to positive and responsible purchasing patterns will be rewarded in the 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 that these benefits are difficult to measure, and green solutions, as discussed above, are not always possible.
