Posted: March 22nd, 2023

Issues and Challenges for the Global Supply Chain

Transportation and Traffic Management

Supply chains are essential for every small, medium, and large organization; they facilitate business processes such as acquiring raw materials and distributing final products to consumers. Initially, most organizations maintained domestic supply chains mainly because they were convenient and easy to manage and control. However, globalization has restructured the business environment and introduced a new concept of the global supply chain that enables firms to exploit international opportunities and produce and sell products worldwide (Ibrahim et al., 2015). The global supply chains also allow entities to spread supply chain risks across different markets, improve their transportation strategies, exploit low-cost nations, and expand their sources of revenue. Despite the multiple benefits, global supply chains have considerable problems that pose significant risks to firms’ operations; hence, exploring the issues and challenges for the global supply chain would reveal the underlying issues from a business and public sector perspective.

Technology

An analysis of prior studies reveals that technology is a significant challenge for global supply chains. Studies conducted in developing countries, notably Tanzania, showed that the use of outdated technology in the domestic market is a considerable challenge that affects the global supply chain network in the country’s public transport sector (Msimangira & Tesha, 2014). Up-to-date and advanced technology is critical in streamlining data sharing across different parties in the supply chain, especially when some processes are outsourced to international suppliers. However, the differences in technological milestones between developed and developing countries may pose considerable challenges in accessing and sharing up-to-date information across the supply chain. These constraints can affect a firm’s operations because it may not conduct timely information monitoring on its various processes, such as logistics and production. Therefore, the technological differences experienced across countries pose significant issues on global supply chains because domestic firms may not be well-positioned to streamline information sharing with their international suppliers.

Infrastructure

Besides technology, infrastructure is also a significant issue and challenge for global supply chains. Studies reveal that poor infrastructure, transport, and communication affect the effective management of supply chains across continents, predominantly between Asian and African countries (Balan et al., 2006). Munim and Schramm (2018) also add that poor logistics facilitation greatly affects a country’s competitive advantage. Reliable infrastructure is a critical factor for the success of any supply chain, notably given today’s just-in-time production processes. Unfortunately, most developing countries lack a good infrastructure network that affects goods’ movement across the supply chain. Arvis et al. also argue that poor infrastructure, unreliability, and unpredictability of logistics services impose high delivery costs on companies because they must cover a higher inventory maintenance requirement (as cited in Munim & Schramm, 2018). In essence, good infrastructure benefits the global supply chain because goods can be moved across the different processes cost-effectively and reliably. However, the poor infrastructure between some countries poses a challenge to the global supply chain because suppliers and manufacturers cannot move the outsourced products across countries effectively.

Cultural Mindset

Apart from poor infrastructure, studies also show that cultural mindset affects the global supply chain. Balan et al. (2006) argue that trust plays a vital role in the cultural mindset, and it is often the foundation of information sharing and collaboration. Arguably, cultures that share a similar thought process are likely to make similar decisions, which lays the foundation for trust among the groups. Trust, in turn, promotes collaboration among people with similar thought processes and the ultimate success of global supply chains. In this context, partners in a global supply chain often have varying cultural mindsets, which affect partnerships across the supply chain. For example, some countries, such as the United States, value monetary gains in business decisions, while the Chinese culture promotes communism. The varying cultural mindset between the two countries can affect the global partnership because one culture may not trust the other’s decisions. Managing a global supply chain may be unsuccessful in such scenarios unless cultural differences are identified and addressed appropriately.

Currency Requirements

Furthermore, studies conducted in Tanzania show that currency requirements are critical issues facing global supply chains. International exchange rates keep fluctuating because of the changes in each country’s economic condition. This exchange rate shift poses considerable challenges to global supply chains because firms are forced to pay higher costs for outsourced processes in countries with depreciated currencies. For example, when the value of the U.S. dollar appreciates, entities sourcing their production activities in such a country may experience a hike in their production costs, affecting the entire supply chain. Besides, each country has a varying currency requirement and fluctuating value, making it difficult for enterprises to predict the costs and value of their global supply chain in the long run (Msimangira & Tesha, 2014). Therefore, while global supply chains may help enterprises exploit low-cost countries, they may expose the industry to currency requirement issues and adverse exchange rate changes.

Political Factors

Apart from technology, cultural differences, and currency requirements, political factors also contribute significantly to global supply chain issues and challenges. Arguably, political tension among countries can inhibit or increase the costs of the flow of business processes across countries. This issue is evidenced by some of the previous events in the global supply chain following the U.S.-China trade war. Most notably, the political tension between the two countries led to the introduction of higher trade tariffs, which made imports expensive and less attractive.  Studies show that the trade war affected supply chains in the two countries and across third countries with close trading relationships with the United States (Mao & Gorg, 2019). For example, when the United States imposed a 15 percent tariff on Chinese imports, China also retaliated with a 5 to 25 percent tariff on United States exports. The increase in tariffs affected trade across the countries and the global supply chain, too, because companies had to pay higher rates in the then-expected low-cost countries. Drawing from the US-China trade war, it is evident that political tension is among the critical issues affecting the global supply chain.

International Delays Caused by Natural Disasters

Although rarely addressed, global delays resulting from natural disasters are significant issues and challenges for the global supply chain. This challenge is well-evidenced by the current COVID-19 pandemic, which has affected movement across geographical boundaries. Hedwall (2020) notes that when the pandemic struck, it brought to companies’ attention the importance of reacting, adapting and establishing crisis management mechanisms to weather uncertainties in the business environment. The author also argues that the pandemic tremendously affected the global supply chain, especially for companies that relied hugely on production and supplies in Southeast Asia, China, and other low-cost nations (Hedwall, 2020). Arguably, most companies experienced low supplies, some shut down, and others are still at the recovery phase due to the delays in the production processes due to the disruption of the global supply chain by the COVID-19 pandemic. This information proves that delays caused by natural disasters are a significant issue for global supply chains that firms ought to address for their continued operations in case of the emergence of such events.

Conclusion

As is evident from this analysis, global supply chains play a critical role in firms’ success; they enable enterprises to exploit opportunities in low-cost nations and reduce their operational costs, which, in turn, helps them increase their revenue. The paper also shows that global supply chains enable entities to sell their products internationally, thus enhancing their profit base. Despite being beneficial, global supply chains are also prone to multiple challenges, including constraints posed by outdated technology, poor infrastructure, differing cultural mindsets, varying currency requirements, political tensions across countries, and logistics issues caused by natural disasters.

The above information also proves that most of the problems facing global supply chains can be mitigated for a firm’s continued operations in the long run. For example, some of the supply chain issues caused by natural disasters disruption can be mitigated through diversified processes. Notably, rather than relying on a few low-cost countries, enterprises should diversify their processes to other supplies for continued supply in the event of disruptions in one region. Firms can also invest in up-to-date technology to promote seamless connections with global suppliers. Otherwise, other issues and challenges, such as shifts in exchange rates, are unavoidable; but firms can react to them through appropriate financial hedging.

References

Balan, S., Vrat, P., & Kumar, P. (2006). Assessing the challenges and opportunities of global supply chain management. International Journal of Value Chain Management, 1(2), 105–116. https://doi.org/10.1504/ijvcm.2006.011180

Hedwall, M. (2020, June 22). The ongoing impact of COVID-19 on global supply chains. World Economic Forum. https://www.weforum.org/agenda/2020/06/ongoing-impact-covid-19-global-supply-chains/

Ibrahim, H. W., Zailani, S., & Tan, K. C. (2015). A content analysis of global supply chain research. Benchmarking: An International Journal, 22(7), 1429–1462. https://doi.org/10.1108/bij-04-2013-0038

Mao, H., & Görg. (2019). Friends like this: The impact of theUS-China trade war on global value chains. In EconStor. https://www.econstor.eu/bitstream/10419/201399/1/1670022242.pdf

Msimangira, K. A. B., & Tesha, C. P. (2014). Global Supply Chain Practices and Problems Facing Developing Countries: A Study in Tanzania. Operations and Supply Chain Management: An International Journal, 7(3), 130–138. https://doi.org/10.31387/oscm0180119

Munim, Z. H., & Schramm, H.-J. (2018). The impacts of port infrastructure and logistics performance on economic growth: the mediating role of seaborne trade. Journal of Shipping and Trade, 3(1), 1-19. https://doi.org/10.1186/s41072-018-0027-0