IB Docs (2) Team
The local & global supply chain process
The local and global supply chain process (AO2)
The supply chain involves manufacturers, distributors, retailers, and customers
A supply chain refers to the network of the individuals, firms, resources, business operations, and technologies involved in the creation and sale of a particular good. Supply chain management (SCM) is the art of managing and controlling the sequence of activities from the production of a product to it being delivered to the final customer. SCM is about planning and organizing production as well as the distribution of finished goods. It includes overseeing the movement and storage of raw materials, semi-finished goods, and finished goods, from the point of origin to the point of consumption of the final product.
For example, the supply chain for shirts includes the following:
Cloth manufacturer
Tailor or producer
Distribution and transportation
Retailers
Customers
Supply chain management involves a firm working with all its suppliers in order to maximize efficiency, be they locally and/or globally based. The logistics involved must also be cost effective for the business to be profitable.
By contrast, a long supply chain or ineffective supply chain management can be costly to an organization. This is because it increases the odds of things going wrong, such as miscommunications with suppliers in the chain or late deliveries being made.
A local supply chain refers to short distances between producers, suppliers, and consumers within a confined location, such as the same city, district, or country. For example, a local farmer may supply organically grown agricultural produce to customers in nearby locations. Local supply chains can be more efficient in terms of time and involves less transportation. This has positive impact on the economy and environment, such as less pollution and shorter supply chains. Furthermore, local supply chains are less prone to disruptions and tend to be more sustainable than global supply chains.
A global supply chain refers to the network between a firm and its suppliers and consumers that incorporates all transactions on an international level, from sourcing raw materials to supplying finished goods and services to customers. It involves the long distances between producers, suppliers, and consumers across different countries. Hence, this involves the international trade of goods and services. For example, supermarkets import fruits and vegetables grown in other countries and continents. These products will have been harvested and packaged ready for transportation over hundred or thousands of miles across international borders.
Global supply chains can be more efficient in terms of costs due to the benefits of offshoring production. However, they have a bigger impact on the environment and tend to be less sustainable than local supply chains. Nevertheless, the benefits of international trade and exchange mean the multinational companies rely on global supply chains to increase their customer base and profits.
Effective SCM has become increasingly important and more complex due to changing consumer demands and information being more readily available on the Internet and social media platforms. This is one reasons why reshoring has becoming more popular as businesses shift production back to the domestic economy due to growing concerns about risks of long and complex supply chains as well as global supply chains being disrupted by unpredictable events around the world. The dangers of ineffective supply chain management can have devastating impacts on an organization (such as KFC running out of chicken products in the UK back in 2018) or an industry as a whole (see Case Study below).
Case Study - Europe-wide horse meat scandal
In 2013, meat products labelled as "beef" in UK supermarkets and other retailers including IKEA faced were exposed in the media to contain horse meat. The Food Safety Authority of Ireland tested a range of frozen beefburgers and ready meals, such as lasagne and meat balls, from supermarkets and found significant traces of horse and pig meats. Although eating horse meat in not harmful to human beings, suppliers were heavily criticized for misleading consumers as well as the ethical issues surrounding such practices.
The pressure for suppliers to keep costs down had led to some of them switching to cheaper ingredients in order to remain competitive. Prior to the scandal, supermarkets and retailers had not tested for horse meat in beef products, because (arguably) no one could have really expected this. With so many ingredients used in processed foods, the supply chains are long and complex. According to KPMG International, an accounting multinational company, there are around 450 points at which the supply chain can break down.
Source: adapted from The Guardian
Watch this short video clip about Walmart’s supply chain:
Watch this short video clip about the importance of the supply chain for Apple. The video highlights the reasons why iPhones cannot be produced in the USA, and hence the importance of global supply chains.
This is an excellent 8-minute video about supply chain management, from the Arizona State University’s W.P. Carey School of Business:
Before attempting the Exam Practice Question below (Carrefour), watch this video about the incredible logistics of grocery stores and supermarkets.
Key concept - Ethics
Discuss the role of ethics in decisions made about the local and global supply chain process.
ATL Activity (Research skills)
Suggested time: 30 mins
Investigate how the COVID-19 coronavirus pandemic has affected global supply chains for a business or industry of your choice. Be prepared to share your findings with your teacher and the rest of the class.
The COVID-19 coronavirus outbreak has affected local and global supply chains across the world, affecting every country and industry on the planet. Many suppliers have struggled to meet their contractual obligations, putting their businesses at risk of failure. Supply chain disruptions have affected the ability of local and global firms to:
Remain liquid (financially viable)
Retain employees
Maintain relationships with their suppliers
Pay their debts and short-term liabilities
As many countries experienced national lockdowns, many businesses had to close, at least temporarily. This has negatively affected employment, spending, and investments thereby causing further problems for local and global supply chain management.
If anything, the COVID-19 pandemic has highlighted the real value and importance of effective supply chain management processes, be they local or global.
To test your understanding of the local and global supply chain process (AO2), have a go at the following exam practice question.
Exam Practice Question - Carrefour
Carrefour is a French multinational hypermarket chain that operates on a global scale. It is the second largest retailer in the world, after America’s Walmart, with annual sales in the region of €85 billion ($104bn) and over 321,000 employees worldwide. Carrefour’s brand strategy is simple: it places emphasis on price, complemented by its constant pursuit of improvement in services for the customer.
The vast amount of products sold in its stores (over 12,225 of them) means that the company must have effective supply chain management. The coronavirus pandemic during 2020 caused panic buying in some parts of the world, leading to empty shelves in many of its locations.
Source: adapted from Carrefour website (www.carrefour.com)
| (a) | Define the term supply chain management (SCM). | [2 marks] |
| (b) | Examine how a supermarket retailer can improve the efficiency of its supply chain. | [6 marks] |
Teacher only box
Answers
(a) Define the term supply chain management (SCM). [2 marks]
SCM is the management process of overseeing the flow of goods from the source (such as farmers for supermarket fruits and vegetables) to the final destination of reaching the customer (such as supermarket customers). Essentially, it means getting the right ball bearings to the right customers at the right time, and at the right price.
Award [1 mark] for an answer that shows some understanding of supply chain management (SCM), although the definition lacks detail / clarity.
Award [2 marks] for a definition that shows clear understanding of supply chain management (SCM), similar to the example above.
(b) Examine how a supermarket retailer can improve the efficiency of its supply chain. [6 marks]
Ineffective and long supply chains provide opportunities for things to go wrong. Due to the large scale of its operations, a supermarket retailer will need to improve the efficiency of its SCM in order to remain competitive and profitable. This might be achieved by various means, including the following methods:
Improved stock control – Lean production methods such as just-in-time help to ensure that the appropriate supplies of inventory at the supermarket are produced / available in order to meet the level of customer demand. By contrast, a lack of stocks from suppliers will cause delays to the rest of supply chain.
Quality assurance – All stages in a supermarket’s supply chain must have value added in order to attract customers to buy their products, thereby generating profit for the retailer. For example, a JIT stock control system using bar codes to keep track of inventories, for example, will help the supermarket to reduce wastage.
Supplier networks – Improving relationships with suppliers or intermediaries will help the supermarket retailer to get the right stocks delivered to the right place and at the right time. This helps the supermarket in its daily operations and to avoid a possible stock-out. Collaboration between partners in the supply chain (such as suppliers and distributors of food and drinks products) can facilitate improvements in the supermarket's SCM, thereby helping to reduce its operational costs without compromising quality.
Transportation networks – The supermarket retailer could also investigate the most cost effective methods of distributing the diverse product range from multiple suppliers and distributors. This will also depend on external factors such as the quality of the country's infrastructure, for example.
Subcontracting – As a relatively large organization, the supermarket retailer might also decide to use sub-contractors and couriers for part of the business's operations.
Award any other valid way to improve the efficiency of the supply chain for a supermarket retailer.
Essentially, SCM is a tool for achieving lean production by helping the supermarket retailer to identify areas of wastage and inefficiencies in its operations.
Award [1 – 2 marks] if limited knowledge and understanding of supply chain management is shown. There is limited use of appropriate business management terminology.
Award [3 – 4 marks] for a descriptive answer that shows a partial examination, i.e. the answer lacks overall depth. There is some use of appropriate business management terminology.
Award [5 – 6 marks] for a thorough examination that shows an accurate and detailed knowledge and understanding of how a supermarket retailer can increase the efficiency of its supply chain management. There is appropriate and effective use of business management terminology throughout the answer.
Return to the Unit 5.6 - Production planning (HL only) homepage
Return to the Unit 5 - Operations management homepage
Twitter
Facebook
LinkedIn