THE THREAT OF GLOBAL GRIDLOCK

A Case Analysis

GEM 671: GLOBAL BUSINESS MANAGEMENT September 5, 2012

EXECUTIVE SUMMARY
The case The Threat of Global Gridlock by George Stalk highlights that the world is about to face a major crisis in transportation because of not meeting the demand of the global economy. The author believes that currently the threat has been masked away but it's imminent and if the prerecession trend reappears it would be a serious problem with the lack of infrastructure and the rising prices of oil. According to him there are four basic means of transportation that are by truck, train, ship or air 1. So choosing the right means is important to gain competitive advantage over competitors, moreover to save cost of logistics. Similarly the waves of globalization, regional integration and other business practices are in increasing trend so this case also talks about the impact of transportation network problem on the todays retail and durable goods companies as well as provide guidelines what companies can do to deal with such problem that may occur in future.

STRATEGIC ISSUES
The impact of transportation bottlenecks, increasing congestion and delays in logistics will hit all around the globe. So having a better supply chain management and efficient logistic networks under these circumstances could give a company the competitive edge over its rivals. So the main issue here is how a company can manage a better supply chain management and efficient logistics networks to offset the higher costs of production and labour resulting from a long and inefficient logistics and supply chain. Similarly, in coming days doing business will be more complicated and complex due to the global gridlock in the supply chain management. Any means of transportation like truck, train, ship or by air are not free from the congestion threat. The congestion in the logistics systems not only hamper the effectiveness and efficiency in the supply chain management but also invites the series of problem like raising the cost of working

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capital, reducing the goodwill of the business, losing the market share, increase in the production cost. So how important is it to reassess the current companys business footprint to achieve long term success?

Another important issue address is that the companies should consider the implicit cost and explicit cost because many companies are not aware of the magnitude of indirect cost but when the companies add all these costs to the equation what appeared to be healthy profit may turn to be loss.

STRATEGIES FOR THE ISSUES

Once the recovery begins, a lack of infrastructure capacity, combined with rising oil prices, will constrain global growth. To overcome these problems the first step is to understand the cost and time trade-offs built into logistics system and measuring the slightly increase cost2. Hot hatching and direct-to-store strategy also play great roles to make the goods available at timely and at low price. Similarly, the practice of reserving the manufacturing capacity from supplier to get preferred treatment as demand for products fluctuates can be taken. The initiation to increase the capacity of the transportation facility has to be taken not only from the government sector but also the private sector should also be involved. Moreover, to deal with problems the companies should also shift their sourcing footprint to the lower cost countries like china and at the same time they should also eliminate the long and complex distribution channel. For this the flow of information among the parties in a supply chain network should be improved. We often believe that the air transportation is expensive than road and shipping but that might not be always true if we consider the implicit cost. So detail study of the implicit cost is necessary while choosing the modes of transportation. The high margin goods are to be transported through the air transport. Making the big, efficient manufacturing plants low-cost location where there is less congestion.

RECOMMENDATIONS
The congestion problem in the logistic system is bringing complexity doing the business today. Though this problem cannot be eliminated permanently but we take some timely initiation to reduce the impact significantly. The following measures can be the best guidelines to tackle the problem. The global companies should establish its subsidiary company in regional level where the market size is sufficient to make good profit; it can eliminate the problem of transporting the goods. The country should also give more and more approval for opening new airport so that to lessen the air traffic. The goods and services whose demands fluctuates quickly should transport through air way or encouraged hot hatching. The use of the tracking system is to be introduced so that they can predict arrival time by monitoring the position of goods any point by monitoring the package. The off-sourcing should be done from the country where the labour cost is very low so that the increasing transportation cost is compensated. E.g. china and India. The calculation of indirect cost is also taken in to consideration so that to figure out the actual profit extracted from the business.