Imagine your new distribution facility in central America shut down because the local employees, who believe the place to be haunted, refuse to return to work until an exorcism is performed. Or a new business arrangement with an Asian 3PL falling through after the Canadian logistics manager sent overseas to work out the deal turns down an invitation for an evening of "hashigo" the Japanese version of a pub crawl. Or what you believe to be a standard performance contract with a Chinese warehouse service provider containing a "circumstances change" clause, which essentially means the contract isn’t legally binding.
These are just three of many examples of how cultural complexities can throw even the best managed global supply chains an unexpected curveball.
Global supply chains have taken hold with a vengeance. Fueled by stringent bottom line cost reduction imperatives and top line growth mandates, more manufacturers are relocating their operations overseas, more importers are sourcing from a greater variety of countries and more exporters are expanding their reach into new market areas.
The initial emphasis in such endeavors, usually, is on managing the logistics of distance. Sourcing product from factories in China or India for distribution in North America is undeniably more challenging than sourcing that product from a local supplier. A recently published study conducted by Deloitte found that about 15% of North American manufacturers no longer carry on production in their home markets. In western Europe, a quarter of manufacturers have taken their manufacturing outside their borders.
Aside from technical issues such as pallet size differences and conflicting RFID protocols, transfer pricing becomes a major consideration when companies decide to stretch their supply chains across international boundaries. As Jim Kilpatrick, executive leader of Deloitte’s Canadian supply chain practice, points out, this is forcing supply chain managers to become familiar with the impact on supply chain strategy imposed by the shifting values of the different currencies as well as by different tax rules. Exchange rates, for example, can make a difference in the level of inventory that should be kept, the selection of suppliers and transportation modes.
But logistics managers with global responsibilities can’t afford to simply bury their heads in the intricacies of containing transportation and warehousing costs. Doing so would be to neglect an essential ingredient to successful global operations. When dealing across borders, particularly in the more undeveloped regions, cultural differences can often trump the most logical of supply chain planning.
The most obvious consideration is that global supply chains must take into account the impact of local holidays the Cherry Blossom Festival, Chinese New Year, etc. that can throw a wrench in a JIT strategy if you are not aware of them. More complicated is understanding political risk in the more volatile places in the world.
But most challenging is understanding and appreciating the often subtle cultural differences that can create considerable friction in working relationships and lead to resistance of the parent company’s supply chain practices.
The impact of cultural differences may be experienced right from the initial forming of a relationship with an international partner. As North Americans we are generally by international standards — quick to enter into business relationships if they make financial sense. Yet this can run counter to business practices in other countries. Asians, for example, won’t do business until they feel very comfortable with you and that comfort level can take a considerable amount of time to nurture.
As North Americans we also value speed in dealing with problems. We view that as essential to operational efficiency. Yet many cultures place greater value on taking the time to consider many alternatives in addressing an issue before taking action. To us they may seem frustratingly slow at addressing problems; to them we may seem impetuous in our decision making.
Cultural differences can also lead to misunderstandings over contracts. We accept signed contracts as firm commitments that warrant court action if not strictly adhered to. But in some parts of the world, a contract is viewed simply as a general commitment to do business together, not a document outlining every aspect of a deal. If the situation changes significantly, they don’t expect their business partners to hold them to their commitments. In fact, contracts are seen by some cultures as far less meaningful than personal commitments between associates.
Cultural differences can be felt even in areas such as outsourcing or the use of lawyers. In some part of Asia, inviting a third party to design and implement a supply chain management model for your business could imply you have not done your job properly. In some countries the common North American practice of bringing a lawyer to a negotiating session can be interpreted as a sign of distrust.
The trend towards increasingly global supply chains is inescapable. But the sheer number of complexities involved is sure to make it quite the journey for logistics managers.
Lou Smyrlis is the editorial director of the Transportation Media group of properties,which includes ctl.ca and Canadian Transportation & Logistics magazine.