Identify the challenges and risks in the current state of the global supply chain
The current global supply chains are faced with various challenges, which bring about various risks to multinational corporations. These challenges and risks are centered on the changing nature of customers’ preferences. As opposed to a few decades ago, it is becoming increasingly difficult for multinational corporations to meet the needs and preferences of their customers, especially due to increased transparency in the free market economy. There are also increased levels of awareness among the customers on the current global market trends, and as such, customers are constantly looking for the ‘next big thing’ from different multinational corporations (Lan and Bhuvan 23).
Globalization has enabled many companies to expand into new markets in foreign countries so as to increase competitiveness and profitability. Even though globalization is viewed as a strategy for increasing companies’ profit margins, it comes with increased costs due to complexity of the supply chains. Different countries have different taxation and business regulation policies. In many countries, it is expensive to manufacture goods due to prohibitive taxation policies.
As a result, many multinational corporations opt to manufacture their goods in low-cost countries and transport them to the countries where they have businesses. The end result is increased cost of production, reduced efficiency, and a decline of customers’ loyalty. If not managed properly, these issues pose the risk of reduced profitability and ultimate closure of businesses (Flynn, Morita, and Jose 81).
The other significant challenge in the current global supply chains is the volatility of markets. For a supply chain to function effectively, there is a need to have a relatively stable market in terms of customer preferences, cost of production, supply of goods and inputs, and business regulation policies. There has also been a fluctuation of the major currencies like the United States dollar. The fluctuation not only affects supply chains but also makes it hard for investors to make crucial investment decisions. The instability of the major currencies also exposes the supply chains to poor market forecasting, which leads to poor harmonization of manufacturing, processing, and pricing strategies.
What are the benefits as well as the disadvantages of the various supply arrangements in the current order of international transactions?
The contemporary business environment is characterized by increased competitiveness due to globalization. As a result, there is a need for exporters to ensure that importers not only get their desired goods but also get them through a payment method that is convenient and less prone to risks of losing money. The current international transactions are based on two major principles. The first is that any sale of goods is considered as a gift to the importers until they send the payment for the goods. Secondly, all payments made for goods before delivery are considered as donations until the importers receive the goods they have paid for (Davies and David 84).
There are various supply arrangements in the current order of international transactions. Each arrangement has its benefits and disadvantages to exporters and importers. One of the arrangements is the cash-in-advance. With this arrangement, the importers are required to submit the payment of goods before the goods are delivered to them. This arrangement uses wire transfer and other electronic payment methods such as PayPal. It mostly benefits the exporters because they are paid in advance. To the importers, the arrangement poses the risk of delayed delivery of goods, and in some cases; the goods may fail to be delivered. Due to increased competitiveness, many exporters rarely use this type of supply arrangement.
The other supply arrangement in the current order of international transactions is what is referred to as ‘open account’. With this arrangement, the exporters deliver goods before payment is due. In most cases, payment is made within a period of 30 days. This type of arrangement mostly benefits the importers because they are able to do business with goods before paying for them. On the side of the exporters, the method is highly disadvantageous because they are not assured that the payment for the goods would be made.
Works Cited
Davies, Martin and Snyder, David. International Transactions in Goods: Global Sales in Comparative Context, New York, NY: Oxford University Press, 2014. Print.
Flynn, Barbara, Morita, Michiya and Machuca, Jose. Managing Global Supply Chain Relationships: Operations, Strategies and Practices, Hershey Pa.: Business Science Reference, 2011. Print.
Lan, Yi-chen and Unhelkar, Bhuvan. Global Integrated Supply Chain Systems, Hershey, PA: Idea Group Publ, cop, 2006. Print.