August 2010, Chinese road users experienced a 100km-long queue on the Beijing-Tibet expressway (see picture). The motorway was blocked due to extensive road works to repair damage caused by a massive increase in cargo lorries, many of which carry coal from Inner Mongolia to the factories and power stations around the capital.
The Beijing-Tibet traffic jam illustrates the current situation of the supply chain industry. The increasing globalization of the world’s economy helped firms to cut their costs significantly by giving them the opportunity to do business with suppliers who can offer them the best goods at the most competitive prices.
But globalization has also stretched these companies’ supply chains. And with “just in time” manufacturing techniques, it has made them much more vulnerable to problems created by crumbling infrastructure around the world.
This crumbling infrastructure is characterised by:
- trade flows increasing faster than the money spent on expanding and maintaining infrastructure
- changing urban demographics which have begun to strain existing road and railway networks beyond their limits (e.g. China as seen above)
- the global financial crisis which has contributed in slowing down the pace of infrastructure expenditures.
“It is important for companies that export globally or rely on key raw materials and parts from overseas that they include infrastructure risk in their strategic planning. The simplest way to assess your vulnerability is to ask how much would it cost in lost sales if one of your key suppliers fails to deliver or if your goods were held up in transit.” (The Economy News UK)
At the crossroads of globalization 