Globalization Has a Profound Impact on the Supply Chain and Supporting Information Technology
Written By: Michael Bittner
Published On: February 9 2006
In recent years, the World Trade Organization (WTO) often has pointed out the staggering acceleration of global trade since 1995, and the prospect of continued and dramatic increases in global trade throughout this decade. It is estimated that 55 percent of all raw material for American manufacturing now is sourced outside the US. This is in comparison to only 10 percent to 12 percent just a few decades ago. Statistics like this highlight the growing importance of globalization. At a macro-economic level, the World Trade Bank defines globalization as the growing integration of economies and societies around the world. It is interesting that the key action word in this definition is integration. Integration at a systems level has been the nemesis of information technology (IT) professionals for decades. If we look at globalization at a micro-economic level, or business level, then globalization represents the extension of enterprise business operations around the world. Whether viewed at the macro- or micro-level, however, globalization is causing quite the buzz nowadays, and it is not likely to end any time soon.
When we speak of globalization and its effect on modern enterprises, it must be viewed in the context of two additional contemporary inflection points. One of these is the Internet, which has transformed how most enterprises conduct business today. Another is the transition from a push manufacturing and supply chain paradigm to a pull approach, or, more specifically, the advent of the demand-driven supply network (DDSN). These three forces are driving enterprises toward significant transformation of their supply chains, and in turn, this is having a profound effect on IT.
As shown in figure 1 above, the confluence of these three forces, globalization, the Internet, and DDSNs, will undoubtedly drive information technology and innovation. This will place new challenges and opportunities at the doorstep of the chief information officer (CIO), who will have to use creative teams of IT professionals to meet the changing demands of the business community.
Globalization Implies Expanded Operational Risks
A move toward globalization within an enterprise is rarely a strategically planned event. The number of contact points and amount of business conducted off-shore tend to sneak up on operations people over time. It may begin with the strategic sourcing of a component from abroad, or an arrangement for services with a new business partner overseas. Regardless, as the likelihood of globalization impacting an enterprise increases and the risks mount, senior executives need to consider a more strategic approach toward globalization initiatives. Of particular importance are the less obvious operational risks that indirectly affect the day-to-day business operations of an enterprise. As shown below, the business and IT consequences are considerable. The risks detailed hereafter highlight the need for global data transparency, well defined global business processes, and the global IT enablers to support them.
Expanded Operational Risks
Enterprise Impacts for IT and Business
- Political risks
- Economic risks
- Infrastructure risks
- Resources risks
- Labor risks
- Regulatory risks
- Quality risks
- Security risks
- Legal risks
- Contractual risks
- Patent risks
- Reputation risks
- Risk identification, weight, value, and prioritization
- Risk mitigation
- Risk management
- Critical global organizational capabilities
- Global operations management
- Global business processes
- Global business information management
- Global IT enablement
Supply Chain Impacts Are Considerable
Globalization's impact on the supply chain is profound. It creates the necessity for an enterprise to have the following global supply chain management (SCM) capabilities.
- Supply chain planning
- Supply chain execution
- Supply chain visibility
- Supply chain event management (SCEM)
- Supply chain business intelligence
- Global, Web-enabled supply chain collaboration
IT enablers for such global supply chain requirements include supply network integration through interdependent supply networks (ISN) (see Supply Chain Management Is Evolving toward Interdependent Supply Networks), and real time data and event visibility through SCEM software, which includes monitor, notify, simulate, control, and measurement analytics capabilities. Furthermore, at the core of any global supply chain framework is service-oriented architecture (SOA), whose components include Web services, portals, applications servers, security and analytics frameworks, business process management (BPM), and multi-echelon data management. Examples include IBM's WebSphere, SAP's NetWeaver with ESA, and Oracle's Services Oriented Enterprise (SOE). i2 Technologies has also developed an intriguing global supply chain SOA framework it refers to as the i2 Agile Business Process Platform.
As the trend toward globalization continues, the necessary technology will develop. A good example of this causal relationship between globalization and the emergence of the required technology enablers is the current transformation of transportation management systems (TMS). A recent ARC Group report on TMS states: "Globalization is forcing TMS to become multi-modal in order to serve the needs of global demand". Historically, TMS solutions focused on ground transportation, either on local operations that use local common carriers or on domestic private fleet operations. However, intermodal processes, such as ocean carrier offloading, demurrage, or container-on-rail, have gained importance to many industries as a result of expanding global operations. Business logistics processes are expanding with more complexity and global logistics networks are evolving. Global demand for an integrated ocean, air, ground, truck load (TL), non-truck load (LTL), fleet management, and common carrier solution is finally gaining momentum due to globalization, capacity constraints, increasing haul rates, and rising fuel costs. TMS solution providers, such as SAP, Oracle with G-Log, Manugistics, and i2 Technologies, are aware of this growing need and are driving software enhancements toward these expanding global needs.
Globalization Drives New IT Priorities
Integration in its many and varied forms has been a priority of IT professionals for many years, and will remain so for many more years to come. Globalization has only renewed and heightened the focus on integration. Globalization has also driven the need for greater data transparency. Global data transparency implies a vision of supply chain operational data that is at the right place at the right time, in a form that addresses critical, priority needs of data and business information. This vision may be realized by what has become known as a single version of the truth (SVoT) relative to customer, product, and partner information. SVoT is conceptually a virtual data repository, in which data related to product, customer, supplier, and trading partners is available to all global participants in a consistent and timely manner (see Single Version of the Truth). An IT environment that facilitates an SVoT schema should support key processes throughout the enterprise, ensuring a consistent view of data across the global supply network for all participants, as well as benefits for all global players.
In addition to global data issues, the most often cited IT concerns regarding globalization include the following.
- Adherence to global BPM
- Localized network reliability
- Local and global Web disruptions
- IT governance
- Global distribution and education of technology
- Common global business practices for digitized intellectual property
This list represents only a small subset of the plethora of IT issues that can arise from an enterprise globalization strategy that is not designed with a comprehensive examination of the risks and causal relationships driving globalization.
Globalization's profound impact on enterprise supply chains and the corresponding IT requirements, business processes, communications, data transparency, integration, and need for global technology enablers will challenge IT professionals for the foreseeable future. With globalization, the role of the CIO has also become dramatically more complex, as information management is a ubiquitous concern for global enterprises. Finally, globalization requires a new global business mindset, with new strategies, business processes, and enabling technologies, as well as global, real time data characterized by actionable response capabilities.
For more information, follow this link to Michael Bittner's presentation entitle Globalization and Information Technology http://rfp.technologyevaluation.com/store.asp.