Logistics and Supply Chain Management, 4th Edition

MANAGING THE GLO B A L PI P E L INE

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Much has been learned in the last 20 years or so about the opportunities for

cost and service enhancement through better management of logistics at a

national level. Now organisations are faced with applying those lessons on a much

broader stage. As international competition becomes more intense and as national

barriers to trade gradually reduce, the era of the global business has arrived.

Increasingly the difference between success and failure in the global marketplace

will be determined not by the sophistication of product technology or even of mar-

keting communications, but rather by the way in which we manage and control the

global logistics pipeline.

The future of global sourcing

One of the most pronounced trends of recent decades has been the move to off-

shore sourcing, often motivated by the opportunity to make or buy products or

materials at significantly lower prices than could be obtained locally. Companies

such as the large British retailer Marks & Spencer, which once made it a point

of policy to source the majority of their clothing products in the United Kingdom,

moved most of their sourcing to low-cost countries, particularly in the Far East.

Manufacturers, too, closed down western European or North American factories

and sought out cheaper places to make things – often many thousands of miles

away from their major markets.

At the time that many of these offshore sourcing and manufacturing deci-

sions were being made, the cost differential between traditional sources and the

new low-cost locations was significant. However, in recent years there has been a

growing realisation that the true cost of global sourcing may be greater than origi-

nally thought.

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Not only have the costs of transport increased in many cases, but

exchange rate fluctuations and the need for higher levels of inventory because of

longer and more variable lead times have affected total costs. In short life cycle

markets there is the additional risk of obsolescence with consequent mark-downs

or write-offs. Other costs that can arise may relate to quality problems and loss of

intellectual property. With growing concern for environmental issues, there is also

now the emerging issue of ‘carbon footprints’ (to be dealt with in more detail in

Chapter 13).

All of these issues are now causing many companies and organisations to

review their offshore sourcing/manufacturing decisions. Whilst there will always be

a case for low-cost country sourcing for many products, it will not universally be

the case as the following news item suggests.