Death of Global Supply Chains or a New Era?
Are Global Supply Chains Facing Extinction due to Covid-19?
The world of business, as we know it, has changed dramatically. Step forward COVID-19 and the global landscape has shrunken, leaving many businesses reeling from its aftermath.
This virus and the havoc it has wreaked upon the global economy have left a plethora of questions hanging in the air, especially about the future of global business and the strategies employed in a post-COVID world.
One thing we can say with a fair degree of certainty is that the global supply chains, as they once were, are likely to be a distant memory post-COVID.
Managing a global supply chain in the current climate is akin to embarking on a Mission Impossible. Many supply chain, sourcing, and procurement teams have been left to row upstream without a paddle, trying to keep their heads above water in this time of crisis.
Global supply chains are slowly being repaired, but they remain reliant upon interconnectivity, collaboration, and dependency across borders. Many supply chains that rely heavily on a well-oiled globalized operation are like a sick and twisted Rube Goldberg experiment at the moment.
This leads us to the question...
Is COVID-19 the death of Global Supply Chains? Or simply the start of a new era?
Globalization, Internationalization & Localization
The rise of globalization has been attributed to the growth of global GDP over the last 15-20 years [1]. But what does globalization truly entail, and how do localization and internationalization play a role in organizations 'going global'?
Globalization: Globalization is the act of expanding beyond domestic borders, learning about international law, and connecting with global partners [2].
Internationalization: Internationalization is a corporate strategy that involves making products and services adaptable, allowing them to easily enter different national markets. This typically involves adjustments in marketing and sales activities such as translation, messaging, repackaging, and more.
Localization: Localization is the process of adapting a product or service to local markets. In terms of supply chain management, localization can be used to describe domestic sourcing, production, and distribution of goods.
Localization and internationalization are necessary for true globalization as 'going global' still requires a focus on penetrating individual local markets. An organization can practice localization without sacrificing a global presence and vice versa.
Understanding the interplay between globalization, internationalization, and localization can be best understood through a truly global organization, like the iconic McDonald's.
McDonald's operates over 30,000 restaurants in 100 countries [3], demonstrating globalization at its finest. The corporation creates a menu adaptable to various local tastes and customs, showcasing internationalization [4]. In the Israeli market, McDonald's offers kosher alternatives and more vegetarian menu items in certain Indian restaurants [3], exemplifying localization while retaining a global approach, brand, image, operations, and supply chain.
Will COVID-19 spawn more Local Supply Chains?
McDonald's, with its immense global presence, is an example of a company that will likely feel the full force of the pandemic's impact upon consumer habits during lockdowns and declining consumer trends. However, due to its extensive global supply network, alternative supply sources can be located, easing supply-demand challenges during these difficult times [5].
A global supply chain comes with global challenges, but risk and resilience are difficult to manage as the supplier base/tail-end often grows, and supply chain mapping becomes complex and sometimes impossible [6]. A lack of supplier management and insights into the tiers of one's supply chain can be detrimental to an organization during times of change and uncertainty.
So, is there value in going local, steering away from global supply chains? Or does the benefit of a global supply chain outweigh the risks?
Localized supply chains do not necessarily mean sacrificing a global footprint, but it does require a shift in mentality, organizational structuring, centralized leadership, and local talent development.
Some benefits of localized supply chains can include:
- Improved PR
- Go-to-Market Speed and Agility
- Closer Vendor/Supplier Collaboration
- Better Buyer Control
- More Accurate Forecasting for Supply and Budget
- Ethical Integrity
In a post-COVID world, local sourcing may become more attractive, but is it realistic to localize supply chain operations and remain competitive in industries where cheap foreign labor and resources are prevalent?
Have we really gone Global yet?
We live in a very 'global' world, but the truth is that many professional purchasers are already buying incredibly local [7]. About 72% prefer to source locally, while just 10.8% generally prefer to source globally [7]. The global supply chain may not be as global as we believe, being greatly dependent upon individual local operations that collectively make up a global supply network [8].
It appears that the death of the global supply chain may have been somewhat exaggerated. The supply chain is still heavily reliant on individual local operations and, despite its global connections, has been far from as expansive as many might think. Perhaps we've just begun 'Going Global', and it's up to us to decide if COVID-19 will drive a new era in supply chains or simply speed up the process.
Death of global Supply Chains article and permission to publish here provided by Sam Jenks at Kodiak Rating. Originally published on our platform on August 13, 2020.
References:
- un.org 2017
- phrase 2020
- Lionbridge 2020
- Guardian 2006
- Reuters 2020
- Fogle 2018
- Thomasnet.com 2019
- HBR.org 2019
- The transition to local supply chains may be more favorable for some industries due to factors such as improved PR, go-to-market speed and agility, closer vendor/supplier collaboration, better buyer control, more accurate forecasting for supply and budget, and ethical integrity.
- Despite the globalized nature of many businesses and supply chains, a significant portion of professional purchasers already prefer to source locally, suggesting that the reliance on global connections may not be as expansive as many might think.
- Companies that practice localization while maintaining a global presence can effectively demonstrate true globalization, as seen in iconic organizations like McDonald's, which create internationally adaptable menus, while also customizing their offerings to suit local tastes and customs.
