With the evolution of technology, many different aspects of supply chain logistics are also evolving. With the introduction of globalization, the global supply chains are expanding at a rapid rate and becoming more and more complex as the days pass. As a result, the importance of true collaboration is also increasing and making the flow of the supply chain more challenging.
As the modern wave of tech-savvy businesses who are well-versed in offering disjointed technology-driven platforms, high-end programs, and innovative ideas is hitting the market, the traditional marketplace and conventional management methodologies have shattered. This solidarity between the traditional and modern solutions has ultimately given rise to fragmentation in the supply chain industry.
In this article, we will be talking about one of the biggest challenges faced by the supply chain industry that is commonly known as supply chain fragmentation, and we will also discover some helpful ways using which companies can tackle this problem with advanced technology.
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What is Supply Chain Fragmentation?
Supply chain fragmentation simply means using different material suppliers and component manufacturers for producing a product. Fragmentation is also called as PCA, which is the symbolization of trade in parts, components, and accessories.
In the case of supply chain fragmentation, different companies are involved in manufacturing the component parts instead of the final product; these components, once produced, are then assembled as a finished good somewhere else.
It is not mandatory that the suppliers have to be present in the same geographical region. Many less developed countries in the world majorly have an abundance of low-price labors who are skilled in producing component parts.
Therefore, when companies fragment to manufacture products, they save a lot more amount of capital investment.
Example of Supply Chain Fragmentation
Let us take an example of an airplane consisting of parts that were shipped and assembled across different parts of the world. It contains not only metal parts but also some heavier components such as electronic systems and hardware.
Looking more in-depth, we can see that the wings of the plane might have been manufactured in Germany with the use of component metals that were shipped from Africa. The electronic parts of the plane might have been produced in Germany with the program chips and glass that came from China. After that, the seats of the airplane might be assembled in Mexico that was made with the textiles and threads from India.
Afterward, the component suppliers and manufacturers of the airplane sourced the component materials to the United States, assembled them, and then sold them as a finalized product.
The Issues of Supply Chain Fragmentation
With the rise of globalization and modern technology, supply chain fragmentation has paved its way since it has become way cheaper and easier to track the component materials as they are shipped from one place to another.
At the time of major events such as Black Friday or Cyber Monday, e-commerce platforms such as Amazon starts to enlist and set up their prepping centers to manage their high customer demands during the sale season.
These prepping centers are generally small businesses from all over the world that contains repackaged products from third-party sellers and retailers. Almost 60% of the product sales on Amazon come from these prepping centers.
But these centers make the already fragmented supply chain more complicated. This way adds an additional layer of complexity to the route of the products instead of delivering it straight from manufacturers to e-commerce platforms.
But if we keep this complexity a little aside, then supply chain fragmentation is really helpful for businesses during the holiday sale season. As a result, many popular e-commerce brands partner with physical stores to offer their customers a lot more purchase options.
Therefore, we can say that despite the challenges associated with the supply chain fragmentation the globalization and modern technology have made it easier for businesses to meet the rising demands of their customers with easy returns.
Final Thoughts on The Issue of Supply Chain Fragmentation
In this advanced world, the issue of supply chain management is commonly linked with globalization since many business owners look for those suppliers and manufacturers who have excellent labor power and are less expensive, no matter if they are located aboard.
To practice supply chain fragmentation and reap its benefits out of it, global firms firstly research the component parts required to obtain their final product. After that, they look out for those suppliers and assemblers who can prepare the final product for them at a low cost.
Supply chain fragmentation has become quite popular in the industries such as automobiles, airplanes, electronics, transportation, and many more.
In the year 2016, Canada, China, and Mexico were ranked as the most prominent component suppliers to the United States. If we talk as per the logistic requirements, then Canada and Mexico are the most cost-effective option for transportation. Also, these countries have duty-free access because of their participation in NAFTA.