Today’s society is a global conglomerate in which market movements in one part of the world can have consequences for its antipodes. Do you want to know the pros and cons of this new world order?
Economic globalization is the obvious result of technological progress and has occurred especially through trade and financial flows. The Internet and communications can be considered as a vital element for globalization. But if there is one sector that has contributed to turning the planet into a chessboard where products can be manufactured thousands of kilometers from their final destination, that is logistics.
But this globalization has also created a series of advantages and disadvantages for the logistics operators themselves.
Knowing how to adapt to changes and the effects of economic globalization can mean the growth or decline of a company. Most of the effects are ambiguous, that is, beneficial on the one hand, but harmful on the other.
Advantages of Globalization in Logistics
The benefits of operating in a global environment are evident. Globalization involves pros like:
- Increase Competitiveness: Companies’ efforts are aimed at being better than the competition. And better means being more effective promptly, that is, getting the product in excellent condition in the shortest possible time.
- Improvement In Management With a Global Vision of The Company: Covering so much space implies that all business processes must be one, all areas intercommunicate and interact. The system begins at the suppliers ‘suppliers and ends at the clients’ clients.
- Cost Reduction: Being able to choose headquarters and premises anywhere in the world helps to reduce costs. Each country has working conditions, which can increase or increase, for example, the price of labor. Of course, it must be combined with transport prices.
- Specialization and Location: Each plant specializes in a certain point in the process and that makes it possible to work on its improvement, knowing the needs of the other agents in the logistics process. Being able to distribute the logistics system between different geographical points or to concentrate them in the same one reverts in the reduction of costs to which previously reference was made.
- Greater Professionalization and Modernization: Globalization requires companies to apply best practice policies, as well as a KPI or performance indicator. It also demands modernized computerized systems.
- Market Expansion: Globalization allows companies to access products and markets that were previously unreachable and thus increase their potential customers.
Disadvantages of Globalization in Logistics
But globalization in logistics is also going to be associated with some drawbacks, such as these:
- Broad Operational Risks: Globalizing production implies working in different places, this exposes the company to economic and political risks. The quality, safety, and regulation of each site, as well as the risks of the different laws, can be a barrier to logistics work. Thus, the company depends on external factors, which must know how to calculate.
- Risk of Suffering the “Whip Effect”: Known as the “bullwhip effect”, the increased demand for a product can lead to mismatches between its real demand and the perception that the supply chain actors end up having in logistics. If the large amount of information generated by the globalized world is not deciphered optimally, it generates a serious problem, for example, of the accumulation of stocks.
- Zero Margins of Error: With the internationalization of trade, logistics companies cannot afford the slightest failure. The delay in the delivery of a product, either from the supplier to the company or from the company to the customer, is a stain that no logistics operator wants to have.
- Coordination Risks: If you operate in different countries, you have to deal with language problems, differences in working conditions, and even cultural norms.
- The Distance: This can be a problem as the cost of transporting units per product rises and the cost of storing the distributor decreases. It requires the search for a balance so that both suppliers and companies are willing to bear.
- Reduced Inventories: Wanting to be efficient means that it is necessary to operate with reduced inventories, making it a challenge to multiply the quality and reliability of the logistics process.
Globalization logistics is a source of the advantages and disadvantages of Oportunidades and risks to be able to identify and make major decisions.
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