The impact of globalisation on the supply chain

An increasing number of South African companies are engaging in global activities that involve importing and exporting finished products, components and materials across multiple borders and through different trade routes by land, sea and air. At the same time they are faced with growing competition from overseas companies entering the local market. Both sides are being driven by the same challenges of shrinking margins, slowing domestic demand and increasing competition, and by the lure of greener pastures.

In today's world, companies not only need to be agile, flexible and responsive, they need to drive continual innovation throughout their businesses and supply chains to differentiate themselves to remain competitive.

Globalisation and widespread Internet connectivity are giving rise to extended and interconnected supply chains that crisscross the globe. As companies venture into new markets and deal with suppliers and customers across borders, their supply chains become more complex and are a higher risk to business continuity. Added to this, ever changing consumer demands, increasing regulatory and sustainability requirements, and steadily decreasing natural resources are directly impacting businesses and their supply chains worldwide.

As international supply chain expert Douglas Kent pointed out during a presentation recently hosted by SAPICS at Barloworld Logistics, the further businesses move away from their own markets the more they face lesser known or unknown risks. These include, natural disasters, political unrest, continuing reliance on oil, fragmentation along the supply chain, sudden demand shocks, export and import restrictions, terrorism, and different compliancy requirements for different countries.

Ways to mitigate risks include finding alternative sources of supply and trade routes, and partnering and collaborating with supply chain specialists and trading partners. The GE Global Innovation Barometer 2013 study shows that companies are realising that partnerships are the fastest way to achieve scale by providing critical insights into new markets and customers and access to better technologies.

Partnering and collaborating with suppliers and other supply chain entities includes sharing data and information, which can give rise to trust issues. But visibility across all their extended and interconnected supply chains is an imperative for companies conducting business globally.

As companies expand beyond their national borders, they are under increasing pressure to deliver a high level of customer service at an acceptable cost, while achieving a strong profit performance on a global scale. This includes the ability to help their customers improve their supply chain processes and reduce costs.

The challenges and opportunities of globalisation and the growing complexity of supply chains are pushing them higher up the boardroom agenda for discussion and scrutiny.

Developing nations are playing an increasingly significant role in the global economy, with 41% of the world's GDP expected to come from emerging markets by 2015.

In a recent report, "Manufacturing the future: The next era of global growth and innovation", McKinsey & Company predicts that by 2025 a new global consuming class will have emerged and the majority of consumption will take place in developing economies.

To access new markets, companies in some emerging economies are piggy-backing on existing global supply chains rather than building their own. This gives them the ability to export their products and services globally within months. Globalisation increases the need for countries to optimise their road, rail, airport and sea port infrastructure and provide slick cross-border clearance.

In South Africa there is a need to build an interlinked rail and port infrastructure, supported by road. More inland port terminals are also needed, and systems must be put in place to enable cargo to be moved quickly and efficiently between road and rail. According to the National Planning Commission (NPC), 96% of South Africa's exports are conveyed by sea, which underlines the importance of the country's ports.

Forward-thinking local companies are taking measures to lessen the impact of the current inadequate transportation infrastructure on their businesses. These include partnering with supply chain service providers to assist them in strategic route planning, optimising transport modes, using more fuel-efficient vehicles, having the right technology systems in place and generally improving logistics processes.