Globalization

Hot Beans is a growing international coffee company that has expanded into many international markets. In this lesson, we will examine how their tremendous business growth has impacted Hot Beans’ operations and supply chain management systems. In order for Hot Beans to remain competitive in the coffee marketplace, the company has had to go global with their business.

Globalization is defined in a variety of ways depending on the circumstances. In general it refers to the opening of local and nationalistic perspectives to a broader outlook of an interconnected and inter-dependent world with the free flow of capital, goods, and services across national frontiers. This can be interpreted as meaning the integration of world politics, economies and cultures from one country or countries upon another country or countries. This integration also includes and is not limited to countries’ political, cultural, educational, and perhaps religious views. In practical terms it can also refer to the relinquishing of any trade barriers or tariffs that results in uninhibited economic development across all countries. Globalization in this context often refers to the idea that instead of having many different markets, all the world is one gigantic market.

Globalization has impacted the operations and supply chain of Hot Beans in four areas: procurement and sourcing methods, inventory management, distribution facility locations, and transportations.

Procurement & Sourcing Methods

Globalization has been embraced by businesses for many years due to the need for continued corporate growth and the ability to save money. Procurement and sourcing methods have been impacted by the globalization of business. These methods allow companies, such as Hot Beans, to acquire supplies, materials, and labor more efficiently overseas. Countries such as China and India offer Hot Beans low-cost, well-educated workers that can offer tremendous savings along with cheaper production costs.

Not all forms of sourcing come without disadvantages. Hot Beans has to worry if utilizing overseas procurement and outsourcing will cause potential product issues. It is not in the company’s best interest to save money at the expense of quality and reliability. One of their international suppliers had to be dropped when it was discovered that the quality of the beans had plummeted. Hot Beans also has to worry about infringement on their secret recipes in markets such as China, where intellectual property is not deemed important.

Inventory Management

Inventory management methods, or the management of the percentage of stocked goods, has also been impacted from the changes ushered in through the globalization of business. Hot Beans has noticed that their inventory levels have risen since dependency on outsourced materials. This is due to the uncertainty in the transportation of the products due to weather or port issues from overseas markets. The company has to adopt safety stock, or extra stock to mitigate shortfalls, in order to protect their supply levels.

Distribution Facility Location

Hot Beans’ distribution facility locations, which are locations where product is received, stored, organized, and redistributed, are now much more difficult to manage due to the complexity of the globalized network. Hot Beans now utilizes network modeling tools to help choose the best locations of their facilities to incorporate international shipments near ports. With easy access to oversea ports, Hot Beans can cut costs in their movement of product.

Transportation

Hot Beans’ transportation structure, or the method of moving goods, has been impacted through their adoption of globalization. The actual methods of transportation, such as air, boat, and train, have not been altered, but the overall integration of the types of transportation have increased in complexity.

For example, Hot Beans used to acquire all of their product and materials from local companies in North Carolina. As their company grew globally, they now have to coordinate their product delivery from overseas from two ports, three distribution facilities, and five countries within the supply chain. Many companies like Hot Beans use LSP, or Logistic Service Providers, who handle the complicated task of managing global networks of production, operations, and the supply of products. These types of providers can manage the delivery of products across continents through different modes of transportation.

Going Global

In order to expand and save money, businesses have embraced globalization, which means relinquishing trade barriers/tariffs to create economic development across all countries. The impact on operations and supply chain management can be summarized in four areas:

• Procurement and sourcing methods
  • Countries such as China and India offer low-cost, well-educated workers and significant savings at the risk of quality and reliability
• Inventory management
  • Uncertainty in the transportation of products has led to safety stock to mitigate shortfalls
• Distribution facility locations
  • The globalized distribution network is complex and generally requires network modeling tools and access to an oversea port
• Transportation
  • Most companies use Logistic Service Providers to manage complex transportation needs across continents

Lesson Summary

Globalization Globalization is defined in a variety of ways depending on the circumstances. In general it refers to the opening of local and nationalistic perspectives to a broader outlook of an interconnected and inter-dependent world with the free flow of capital, goods, and services across national frontiers. It can also refer to the relinquishing of any trade barriers or tariffs that results in uninhibited economic development across all countries. Globalization in this context often refers to the idea that instead of having many different markets, all the world is one gigantic market. Globalization has impacted the operations and supply chain both positively and negatively of our make-believe company, Hot Beans, in four areas:

• Procurement and sourcing methods allow companies to acquire supplies, material, and labor more efficiently overseas.
• Inventory management is the management of the percentage of stocked goods.
• Distribution facility locations are locations where product is received, stored, organized, and redistributed.
• Transportation is the method of moving goods.

Learning Outcome

After reviewing this lesson, you should be able to describe globalization and outline its impact on operations and supply chain management.