Advantages and disadvantages of connected supply chains

David Bailey


Supply Chain

Public and private sector organisations, businesses and consumers rely on connected supply chains both globally and locally. 

Across the world, organisations procure goods and services from suppliers with complex and far-reaching supply chains to service consumers.

Consumers have become ubiquitous about a quick, on-demand shopping experience and on-time delivery. This consumer demand has led to an increase in connected supply chains. This increased connectivity has several advantages and disadvantages that organisations should weigh up. 

What are connected supply chains?

A connected supply chain ensures that all disparate systems, technologies, and networks are linked. They must communicate correctly to provide visibility and effectiveness across the supply chain.

This is the end goal for many organisations that want to optimise their operations. Introducing innovative technologies can aid connected supply chains by ensuring cohesion between systems, increasing efficiency and data operability throughout the entire supply chain journey. 

But not all organisations have the satisfaction of a connected supply chain. The data gaps hinder many incumbent businesses in their operations.

Global supply chains and local supply chains are all connected

Connected supply chains allow companies to go to others and outsource various operations for low production costs, cheap labour, and quicker procurement of products and services. Global supply chains begin with suppliers and manufacturing flowing from one country to a finished product or service. 

The local supply chain works more efficiently when the suppliers operate their business in the same region where customers are located. Local suppliers have an advantage within an area because they are familiar with all the supply routes. 

However, suppose a local supply chain has international products and services. In that case, they will ultimately be impacted by global supply chains.

Advantages of supply chains

There are many advantages of supply chains. Supply chains let organisations scale, as they can reach goods they otherwise would not be able to access. Plus, the more they are connected, leads to better digital information that can access connected services including financing and insurance.

1. Reduced cost price

Reducing cost has always been a significant factor in supply chain decisions - finding the cheapest suppliers and retailers to sell goods to consumers for higher profits. 

Organisations choose to source either locally or internationally due to lower labour and operating costs linked to manufacturing services and products.

Sourcing from a low-cost supplier or manufacturer means supply chains contribute positively to an economy, creating job opportunities and boosting living standards.

2. Increased competition

We live in the digital age, and sourcing products and services internationally have never been more accessible.

Global supply chains allow businesses and consumers to take advantage of product innovations within other countries, keeping supply chains current and competitive.

3. Higher volumes

Particularly for retail sales, one advantage of supply chains is that more efficient production capabilities and lower cost mean organisations can purchase more goods and services at competitive prices and thus sell more, boosting company profits. 

Buying more equates to selling more. But not only this, broadening supplier options equates to continued product sales should one supplier run out of stock or a vendor is unable to deliver.

4. Supplier development

Working with local and global supply chains, it becomes possible for businesses within countries that traditionally did not operate to high production standards for their end markets to have had to 'up their game.'

For example, companies operating within developing countries or those like China and India understand that if they do not meet US or EU standards, these markets will source from regions that do. 

5. Greater variety of products and services

The supply chain also makes securing almost any item easy since it is probably being produced or manufactured somewhere in the world. Historically, any item not from a local range could take ages to build. Now customers can buy it from the country where it has been made, whether locally or globally.

Plus, consumers can whether their products are sustainable, thus generating even more competition. So, should that vendor have other products to sell, businesses can begin to sell additional services, boosting profits that otherwise could go to competitors.

6. More international customers

Supply chains are not only about where goods are bought. The other segment is where goods are shipped. 

Operating within global supply chains brings new opportunities in new international markets. Suppose a company is sourcing items from China. In that case, it is feasible that they may wish to look at other markets that they may be able to tap into since they have already established sources in China, for example, within other large manufacturing nations like Turkey or Bangladesh. 

Once a company has taken the first step to source supplies globally, new markets and opportunities begin to follow.

7. Diversifying supply chain risk

Diversifying supply chains mean that if an organisation is within this kind of framework, they have a chance of success and can even grow during an economic downturn within another country or region. If an organisation is not part of it, then its chances of survival are lower, or supply chain risks will increase.

What are the disadvantages of supply chains?

Although there are many advantages of supply chain suppliers, there are risks involved that can lead to supply chain disruptions.

Whilst engaging in supply chains offers benefits, sourcing globally involves the management of different cultures, religions, and time zones, as well as good ethical practices and foreign currencies.

1. Longer delivery times

One of the most prominent challenges of a connected supply chain is that Overseas production time may be quicker; however, the delivery time can often be much longer as the goods will rely on transportation and shipment from different countries. It means that advanced planning is required.

Delivery times have been a significant worry for supply chains during the COVID-19 pandemic. As the coronavirus virus spread from China and then quickly over to European countries like Italy and Spain, it disrupted infrastructure and networks of supply chains both locally and internationally. 

China was affected particularly severely as factory closures led to empty shipping containers mooring in Chinese ports, causing global container shortages. Deliveries were severely delayed or did not arrive at all, causing a loss of profitability for every supply chain stakeholder. 

2. Reputational risks of connected supply chains

Connected supply chains can increase reputational risks and expose supply chain partners to public scrutiny. 

Supply chain leaders should constantly scrutinise business dealings from countries with questionable business ethics records on business ethics. Fundamentally, public and private sector procurement teams should examine all businesses for signs of unacceptable practices, for example, fraud, corruption, modern-day slavery, human trafficking, and broader issues such as child labour.

Buyers should consistently demonstrate integrity and take the time to understand the fundamentals of ethical behaviour when selecting and managing suppliers.  

3. Currency exchange rates

Another supply chain disadvantage is fluctuations in foreign currency exchange rates. As it varies from country to country, it could significantly impact profitability. Global supply chain markets are more susceptible to regional influences affecting trading markets.

4. Loss of quality control

Global supply chains signify that consumers will have a long-distance relationship with their suppliers.

Time zone differences can cause communication challenges. 

Some supply chains span multiple countries, meaning that unrest, natural disaster or another crisis – such as COVID-19 – in other countries could directly impact the steps along the supply chain.

When suppliers are located in other countries, monitoring the technical production processes, ensuring quality, and managing communication becomes challenging. Resultantly, complication in the quality arises.

5. Higher exposure to supply chain risks

When you have suppliers pervaded in various countries, every country's political and economic condition is different, which could put your business at significant risk.

Even if a company sources locally, the local supplier could still be sourcing globally and thus impact local supply chains.

6. (Mis)-communication challenges

When dealing with suppliers in different countries, you must be very careful about the terms you use. You should ensure they're interpreting the same meaning, whatever you meant.

It is not only terminology that is crucial. Data sharing can be miscommunicated when stored in each organisation's supply chain management ecosystem. Integrations with all supply chain stakeholders can only be achieved using a standard messaging protocol.

How can Supplain support connected supply chains?

One of the biggest obstacles private and public sector organisations face with supply chains is data communication and integration challenges.

Whether your supply chain organisation is working with local or global suppliers, every supply chain stakeholder must utilise that data in a way that does not create supply chain data silos - namely, to review data and make sound business decisions along each step of the supply chain journey, from suppliers, manufacturers, retailers to last-mile delivery. 

Organisations can also improve supply chain performance and minimise supply chain disruption by ensuring better coordination with business partners and all the involved and becoming more operable with their close partners in global supply chains.