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The Chainmail Effect: How Globalization Impacts the Supply Chain

There was a time when the world was flat—at least as far as global trade goes. Goods were mainly produced close to their end-users and supply chains were relatively short and linear—moving a product from source to consumption. But over the last two centuries trade has exploded and transformed the global economy. With today’s technological advantages like the Internet of Things (IoT), the connection between supplier and consumer is becoming faster through digitization. From UPS to Amazon to ocean shipping containers, consumers are no longer connected just to the link in the chain immediately upstream from them. Now they can be “digitally connected” directly to their product even as it traverses the world. Through technology, each link can be connected to all the other links, creating a chainmail rather than a chain. 

Globalization—the interdependence of economies and cultures across the world—makes all this easier too. It enables markets and regions to link to others with less cost and risk. It drives technology development by creating standards that bring nations and economies together. It helps us negotiate free trade agreements to remove economic barriers that inhibit the movement of goods, information, and people.

But the growth in globalization also makes supply chains busier and more complex. That’s why it’s hard to overstate the potential impact globalization has on trade. Since everything is connected, what affects one link affects all the others, not just in a linear way but in a ripple-pattern. When your business strategy depends on these linkages, any disruption is cause for concern.

Some nations are rethinking their connectedness, most notably the US and the UK. Since 2016, the US has worked to renegotiate NAFTA and has also withdrawn from the Trans-Pacific Partnership (TPP) and begun a trade conflict with China. Despite nearly two years of trade meetings, the two nations have not yet secured an agreement, with each party alternately threatening, imposing, retracting, and delaying new tariffs. Similarly, the UK shocked the world by voting in 2016 to withdraw from the European Union. Since that time, the UK government has been unable to reach any consensus on what the post-Brexit relationship with the EU would look like. Each day seems to bring a new series of speculative news reports that throw global trade into relative chaos. Many companies have already shifted operations out of the UK, if only to avoid the instability of the Brexit process.

Despite these few notable situations, the trend is toward globalization, and key barriers between many regions are lessening. The EU has developed key agreements with Vietnam and with Japan. The US, despite renegotiating NAFTA, does seek to maintain ties with Canada and Mexico. And the UK has already expressed interest in establishing trade agreements with many of the world’s major players post-Brexit.

Supply chains benefit from many of the same dynamics as the global economy. When collaboration with suppliers is improved, you streamline everything from supplier sourcing and onboarding to PO management and document transfer—without all the compartmentalization. When you can connect with all the various players in your logistics space, you’re able to see where your goods are in real time—down to the SKU level—and respond proactively to any potential disruptions. And when all your stakeholders, both external and internal, are working together on a single collaborative platform, poor communication, inefficiency, and delays are greatly reduced.

When the diversification and interconnectedness of your supply chain mirrors the global economy, the effect really is something like chainmail rather than a simple chain. Because you’re connected to many other links instead of just one, you enjoy the safeguards produced by this diversification and you’re not dependent on the single link in the chain before yours.

Reproduced from Supply Chain Digital