What Is a Global Supply Chain?

A global supply chain is the worldwide system a business uses to produce products or services.

That sounds simple enough, yet a global supply chain can be complex, with many facets that need to be in sync.

Employees, the information and resources they need to keep the system running, and even the tools businesses use to stay compliant with government regulations are part of a global supply chain.

Global Supply Chain Benefits

The global supply chain is important as it creates business efficiencies and cost savings. By cutting costs on product development through less expensive labor, technology, or resources, businesses have greater capability to expand and enter new markets.

Amongst the benefits of a global supply chain is lowered costs. At first glance, you might not think going global with a supply chain would help a business bring down the price of their final product or service.

Freight and transportation obviously will always add numbers to the bottom line. But many countries have lower production costs that make it attractive to expand a supply chain to other parts of the world.

You also may be able to bring down expenses by purchasing goods and services from a supplier when the dollar is stronger against the national currency of the country you're doing business with.

Another benefit is that a global supply chain can make it easier to sell to customers around the world. If your company has outposts in the supply chain throughout, say, Asia and Europe, your business may find it easier to start selling to those parts of the world as well.

It's critical for businesses to be able to reach as many customers as quickly and cheaply as possible.

—Jake Rheude, vice president of marketing, Red Stag Fulfillment

You’re also potentially reducing your risk by having a global supply chain. Let's say you didn't have a global supply chain, and your supply chain was relegated to one particular region. If that area had a severe natural disaster, you could see your entire business come to a halt for a few days, weeks, or even longer.

Of course, you could argue that you're increasing your risks by having a global supply chain. Odds are, something will go wrong somewhere along the chain. But with solid supply chain management, the lower those risks can be.

What Does a Global Supply Chain Need to Succeed?

There are a lot of factors that come together to make a global supply chain successful. The global supply chain works by leveraging different goods and services from various countries to create a more cost-efficient product than if produced in a single country. 

There are many challenges in the global supply chain, which may include:

• Lack of equipment availability
• Labor constraints
• Geopolitical turmoil
• Environmental disasters
• Technological disruptions
• Subpar quality control
• Language barriers
• Delays in lead time and deliveries

A solid good financial plan is obviously vital. If your business doesn't have enough working capital and can't pay for its own infrastructure, it probably won't stay in business very long.

Daren Samuels is practice director of operations at Patina Solutions, which offers on-demand executives in all industries and is headquartered in Brookfield, Wisconsin. According to Samuels, a supply chain can consume up to 85% of a company's revenue.

“Getting it right is really important," he says.

Things such as managing waste and avoiding employee theft are also very important, says Mark Struss, practice director of manufacturing operations at Patina Solutions.

For instance, Struss says if you have valuable components being made or stored in warehouses, your manufacturing plants may require using only clear trash bags and might consider lunch box inspections when employees clock out.

That may sound extreme, but it could prevent losing a lot of money.

A clear logistics plan is also imperative, especially if you're dealing in e-commerce.

"It's critical for businesses to be able to reach as many customers as quickly and cheaply as possible," says Jake Rheude, vice president of marketing at Red Stag Fulfillment, a third-party logistics (3PL) company headquartered in Knoxville, Tennessee.

“There are lots of warehouses all over the country, placed strategically near urban centers to minimize delivery distance," Rheude explains. “Just because you, the customer, got free shipping on that order from [a department store] doesn't mean shipping was actually free. So a major component of supply chains is to use 3PLs to help fill that cost gap by minimizing the resources sunk into moving orders."

Again, it all comes down to cost. A global supply chain needs to be as efficient as possible.

What Types of Business See the Most Success From Global Supply Chains?

Common examples of supply chains include manufactured goods, where a company sources their raw materials from one country, manufactures products in another, ships them to another country to sell them, then has end users in different countries. 

Food and beverage, mining companies, oil and gas, electronics, and textile industries are just a few of the many that thrive with global supply chains. If your business produces a product to sell to the public on large scale, you may do well to have a global supply chain.

What Is a Global Value Chain?

The term global value chain refers to an international supply chain of people and activities that go into creating and offering goods or services when the supply chain needs to be managed across different countries.

This, of course, sounds like the definition of a global supply chain.

The subtle difference is that a global supply chain generally is referred to when discussing the manufacturing and distribution steps. For example, you probably wouldn't include your research and development or marketing team when talking about your global supply chain. They add a lot of value, but you could probably produce or distribute your goods without them.

A global value chain, however, describes it all as one entity. Even your custodial service might be considered part of your global value chain, especially if your product or service is in the food or medical industries.

Basically, if a partner, vendor, or supplier adds value to your business, and could hurt your supply chain if something broke down, then that's an important part of your global value chain, even if it's only indirectly part of the supply chain. 

The Takeaway

Considering a global supply chain can be a key part of growing a business. If you place importance on every piece of the system that produces your goods or services, your business is less likely to be inefficient and run into trouble. It can be smart to think about a global value chain along with your global supply chain.

A version of this article was originally published on November 18, 2019. 

Photo: Getty Images