global supply networks
B) Is the development of global supply networks an ethical and sustainable strategy? Discuss and debate
The keys to market leadership are scope, scale and speed; and it is only those international companies, or those companies known as multinational companies who courageously implement the planning vision of a global supply chain, will have a better opportunity to secure worldwide economies.
Organizations that adopt the economies of scope share among themselves, resources across products, markets and businesses. As this happens, the demand planning concept may be extended by producers, by setting up alliance with all of their suppliers, distributors and retailers.
It becomes possible for all Organizations adopting economies of scale in the supply chain to enjoy lower unit costs and greater bargaining power.
Whereas organizations adopting economies of speed, with real time planning, allow for quick reactions in the case of any change in customer requirements and improved supply chain performance
It is understood that if international or world class organizations want to remain competitive in a global market, they should recognize and understand the need to expand their supply chain management capabilities. It discusses the case for globalizing the company's supply chain planning process and describes how to find out the best time to implement a planning strategy vigorously. It then presents the foundation of the planning activity – the seven pillars used or adopted for a successful global supply chain planning.
A successful implementation will lead the process into various kinds of revenue uplifts besides cost reductions, as can be seen in the following diagram:
The Benefits of Global Planning
Revenue
Cost
Revenue
Revenue Uplift
Improved service levels, support of promotions& period end pushes
Increased market share
Cost Reduction
Improved Purchasing leverage
Reduction in inventories & associated carrying costs
Reduction in planning admin expenses
Improved freight & warehousing efficiencies.
The case for globalizing the Planning Process
Organizations are being forced to consider the advantages of implementing the global supply chain planning process due to the real world events. Many corporations these days still find it more difficult to secure their revenue objectives through the usual known approaches, like pushing as much as possible quantities of products to wholesalers through marketing, which causes various problems, delays in sales and complications.
Even if we discuss customers’ behavior, we will notice that these days customers are becoming more cautious when met with promotion situations, where high incentives are offered for buyers. In total quality management, one of the most important rules is not to give the customer more than what he expects. This is the main reason that worries the customers from any big incentives.
Furthermore, competitors, trade accounts and suppliers started recognizing the benefits of managing all of their operations on a global or pan-regional basis, which made multinational organizations to face this reality and act according to that. It is also important to know that in the world arena, increased purchasing leverage is achieved through consolidated customers. At the same time costs like the cost of changing suppliers, has decreased.
Most of international or multinational companies are facing different decisions about how to re-channel or re-direct or revamp their supply chain to enable them support their marketing strategy and improve their operational performance. In such markets that are obsessed with continual battles for dominant market share, there are few of these organizations that are always on alert to hold any opportunity to gain the economy of scope, the economy of scale and the economy of speed.
For such trailblazing and forward thinking multinationals, the benefits resulting from long term implementation of a global supply chain planning strategy can secure continued success in the continuously expanding world market.
Of course, we never expect to see that every company will become a leader in structuring and building special capabilities in the global supply chain. But whatever capabilities they can gain from this, with time they may mature and become a competitive necessity, where every company will be forced to be a part of this race.
When to Pursue a Global Supply Chain Planning Strategy?
The organizational information and logistics process, known as Global supply chain planning, focuses on providing the customer with the right service and the right product.
In such cases, integrating operations and information system create competitive advantage through an enterprise system. Although such integrated global network permits, major opportunities in reducing cost, but its unique contribution lies in the capability to respond and act to market trends and service the global customer.
The foundation or formation of a new global supply chain process is a process that faces many difficulties. These difficulties depend upon the size of the multinational company. The complexity of the organization is another main source for the degree of difficulty we may face while instituting a global supply chain planning process.
Let us look at the following example, where a multinational company that has a structure that is based on functions and its different business units separately operating in various regions around the world. Each of these units plans its own logistics, inventories and operations, and manages its own processes, but they use different philosophies and various software applications that assist them. Cost of inventories and operation costs are more than it should be, and the goals of the service are not fulfilled consistently, that all lead to friction between production units and sales units. The most disappointing and discouraging of all is that most operations managers have been taught inappropriate inventory formulas. Shifting the inventory cost along the supply chain is proving increasingly ineffective and counterproductive.
When planned, implemented and orchestrated successfully, an organization’s global supply chain planning process will:
Show a global or pan-regional picture of the administrative resources, purchased materials, inventories and services of the organization.
Provide necessary Support for the “go-to-market" strategies along a wide continuum starting from standardization to mass-customization of products and services, as required by customers.
Instead off the need for high inventory levels, in every market, replace with shared information networks, which will lead to the reduction of the number of centers & costs.
Success in improving service levels through quicker response to meeting customer demands and reduced order-fulfillment lead-times.
Successful implementation will lead to increased revenue and share holder value.
Building on the Seven Pillars
After the recognition of the needs, organizations must go to the second stage of deciding about the global supply chain process. From what we have read previously and from previous experiences, we know that the implementation of global supply chain planning rests on “Seven Pillars”. The seven pillars foundation allows multinational organizations to more efficiently meet the customer changing needs and requirements of their key accounts and targeted market segments.
Pillar I: Integrated Supply Chain Planning Process
In ideal cases, we know that sales, operation planning, production and inventory and deployment planning requirements are the different activities, composing the organization’s supply chain planning process, should be integrated into a single information system and the proper tracking performance metrics are in place. Planners with oversight responsibility for all lines of production establish policies and procedures that synchronize supply chain activates with the market requirements and changes.
This pillar supports the global competitive advantages to include a flexible and responsive supply chain planning process that automatically provides
excellent service
Inventory adjustment to the acceptable minimum
Maintaining low operating costs
Such system will provide
Minutely updated information
global scope
Ability to feel, understand, and act in response to all market changes.
And this in turn provides the company with
Special ability to select the most promising channel relationship,
Satisfy ever-increasing customer demands
And attract the best suppliers.
Any integrated supply chain planning system consists of the following activities:
Sales and operations planning: This is an often overlooked activity but critical and crucial for integrating and synchronizing all parts of the supply chain planning system. The sales and operations planning should be designed in a way that gives an overall framework. To secure this, lots more of detailed levels of planning are conducted. Agreement about sales, marketing, financial, production and research & development plans are a consistent part of the Sales and operations planning and should be aligned to the corporate business plan.
Production and inventory requirements planning: As the title suggests, here is the function that determines inventory replacement requirements, distribution houses, and whenever necessary replacement orders for certain customers. Based on these requirements, a production plan is created. The production plan is made in a way that serves production scheduling, capacity planning, load building and associated transportation activities.
Deployment planning: At this stage, the organization determines the distribution of their stock of finished products, the arrangement of the trucking facilities and the truckloads, and the selection of the most suitable shipping lines with a special consideration to saving time and reducing costs of shipping their products to distribution centers.
Pillar II: Global Planning Process Hierarchy
Client abilities should be discussed to find and select companies that are in a position to significantly increase revenue and reduce fixed overhead costs, but at the same time in a position to achieve other strategic and tactical benefits through their designs, management and execution of a global supply chain planning process. Such a system crosses beyond geographical regions, business units, and any other boundaries for the purpose of planning inventory requirements on any level whether global, regional, or local. Keeping in mind, only few of these products, can be marketed globally, and almost all products require certain adaptations to suit international, regional and national customer tastes. One of the major important goals in a global supply chain planning vision is not to set a worldwide product standard, but should bother for uniformity and consistency in their products’ quality, delivery and marketing of their products and services across borders.
An important strategy of the global supply chain planning process is to make all parts of the chain participate in the distribution and execution of all the planning activities and responsibilities at all levels of global, regional, national and local levels with the aim of achieving an optimal mix of global planning efficiency and market effectiveness. An activity or a set of activities will be tackled or focused at by one level. Each activity will also apply to a certain situation but should prove distinctive strengths and weaknesses, as discussed below.
Global Planning Activities
Following are among the prospective planning activities that are seen appropriate to the global planning level:
Production planning, scheduling and inventory arrangement for basic operations of bulk products.
Selected material requirements planning.
Medium and long term planning requirements.
Global planning for major account allocation.
Planning for the launching of new product.
Setting equilibrium of financial forecasts against aggregate unit sales forecasts.
Regional Planning Activities
There are a number of additional activities that should be taken care of during a regional planning level as follows:
The management of a sales forecasting procedure.
Aggregation of Key account forecasts.
Adaptation of financial forecasts and unit sales forecasts.
Allocation planning of Account-specific.
Reconciliation of Sales and operations meetings.
Multinational promotional launches.
Multinational new product launches.
Scheduling of packaging, filling, and assembly plants according to requirements.
Planning for material requirements across regional source plants.
Medium and long term planning requirements.
Planning for Promotional packing and merchandising.
Scheduling of Transportation and load planning.
Deployment of Finished-goods inventory.
Replenishment of Key account stock.
National/Local Planning Activities
Following are examples of some supply chain planning activities that are executed more effectively, if they remain within the constraints of local planning groups:
Contributions of Sales forecast update.
Promotional planning for Local market.
Factories Shop-floor loading.
Scheduling of direct material supplies to factories.
Planning of Load building and transportation.
Scheduling of Warehouse picking/packing/shipping.
Pillar III: Uniform Policies and Business Rules
Disparate planning approaches, different philosophies, various styles of work practices, concocted business rules, and unlimited conventions are found across business units and branches of some of the best managed organizations.
Any organization will have unlimited difficulties in serving multinational trade accounts in proper, coordinated and uniform manner, if all the above specified components of the supply chain process use their own way of conducting business. Customers for such organizations will be frustrated while dealing with multiple productions and logistic fiefdoms. It is obvious, for an organization, embarking upon globalized supply chain planning strategy, to grow customer-service requirements; the organization should increase its adaptability and responsiveness to enable its various business units standardize policies.
Various policies from corporate behavior need to be studied, rectified and rationalized within the various business units and across them. It is natural to see organizations working hard to independently develop marketing processes, sales functions and policies, production procedures and individual distribution plans without any consideration given to other functions. In other words, the singular focus here is in optimizing the individual plans. In contrast in all new models, organizations started adopting consensus-based plans that they develop through formal planning process for their sales and operations.
Pillar IV: Shared Performance Measurements
When we redesign client supply chain planning process, we automatically work to focus to the performance measurement system to ensure that strategic and operational supply chain management objectives are aligned properly. Practically, we notice that a performance measurement that drives most businesses are heavily diverting towards financial indicators. In spite of the importance of these measures but practically they overshadow one another, though they are equally important. These are used to measure all business levels, like service, inventory, market share and satisfaction of customers.
Therefore it is recommended that a balanced scorecard approach is adopted to identify and select measures that should be shared between various departments. Below is a description of this approach, which is contrasted against traditional performance measures.
Organizations come across other important related tasks, besides defining and implementing a new set of measures. Such companies must make sure to share the accountability of these performance measures and the achievements, with all departments that use and manage the supply chain process. A weighted accountability average should be calculated across the various functions of the department for each performance measurement. The outcome of such calculations should be linked to the variable compensation and the annual incentive plans of the management.
Pillar V: Unified Supply Chain Planning Information Systems
Various incompatible software solutions are used by many organizations both across and within business units. When each unit or each department of the business uses its own software, which is different from other departments, then limited information is shared, and important decision indicators are not shared with other sections of the organization. As a result, every unit of the business takes its own decision without referring to other departments of the organization, but this will be at the expense of the overall corporate performance.
This produces a powerful system of enabling information system technologies to supplement a company’s ability to respond to changes in the customer demands through real time updating. Staffs of various units of the business, whether sales, marketing, and planning and/or finance, make use of information sharing and making analyses and taking business decisions.
With the powerful tools used in exchanging information, organizations have global and regional views of:
Anticipated Forecast requirements, with local promotional needs.
Finished-goods inventory balances and location.
Production plans.
Capacity levels.
Consolidated material requirements plans.
Pillar VI: Process-Based Organizational Structure
In many organizations, management teams have inherited organizational structures that are best described as static and irrevocable legacies. In spite of this, such structures should allow for changes, to some degree to align with the company changes, and the changes in industry besides the changes in their markets with time. Undoubtedly an appropriate organizational structure should be selected and adopted to achieve a synergistic match with the size, growth rate, and the suitable strategies approaching the targeted marketplace.
.There is no single model organizational structure that may be considered most effective in all business conditions. Generally organizations have been adopting functional framework or product framework or market based framework. Each framework exhibits a significant degree of autonomy from corporate management and other divisions. In such organizational structures, we can notice inefficient information exchanges throughout the departmental boundaries that will make the supply chain planning process inefficient by causing delays and increasing mistakes.
In such process-based structures, teams are set in a way that organizes works in certain function, to secure the corporate goals and meet the customer requirements. When objectives are achieved, a process-based organization gains important competitive advantages, which enhances the company’s adaptability to changes in market demands..
Integrated Logistics Management function - responsible for sales forecast accuracy - is created through proper adjustment between an organizational structure that is based on process and the planning strategy of the global supply chain. Its main advantage is enhanced accountability for finished-goods inventories and customer service.
Pillar VII: Shared Planning Centers of Excellence
Sharing of communication and information among departments leads to better planning decisions. Unfortunately, some organizations organize their planning functions globally to strengthen interdepartmental sharing. This becomes a complex problem when business units with decentralized planning takes place. Organizations implement the shared services approach to supply chain planning to be able to tackle the opportunity costs and inherent inefficiencies related to this level of complexity.
This approach can be implemented in two basic ways:
(1) Different planning centers in different areas but these centers are through high standard communication system.
(2) Centralized planning center.
The ideal approach is to nominate a staff member from the regional planning centre to do the necessary coordination.
The Bottom-Line Benefits
A great number of organizational management teams and many writers believe that the moment they have discussed the question then they are operating under a global supply chain planning strategy. Structuring an effective “global supply chain planning” solution, needs a lot more serious attention. Following are some points that are being frequently ignored:
The integration of “voice of the customer” into the definition of “go-to-market” strategy.
Design of global supply chain planning process
Distribution of future planning activities at various levels.
Organizational structure that supports the global planning process.
Organization & management of the supply chain planning staff resources.
The possibility of global supply through planning tools and supporting information systems and infrastructure
Standardization of best practices, policies, procedures, and business rules across divisions, geographical regions and product lines, and integration with the global planning process
Required performance measurements that helps manage supply chain
Associated costs and benefits with globalizing the supply chain planning process.
In brief, any global organization looking for new ways to reduce their costs and increase their revenue & customer service levels should start with developing a global supply chain planning process strategy. This step starts by analyzing issues involved in restructuring and operating the supply chain planning process with a global perspective. This will require the involvement of some selected suppliers and customers to assist in such analyses to increase customer responsiveness. Such speedy and increased response abilities will allow a competitive advantage.
The second step to discuss the business case to find opportunity targets that provides value to shareholders. Improved inventory turnover objectives, promotional support, and productive allocation process will be achieved through a high level of customer service and satisfaction, which will also lead to an additional contribution in the shareholders’ value.
At last the final step is the actual preparation and execution of what is known as the “overarching implementation” plan. We should start by the evaluation of the present planning process and then create a clear picture of the expected and anticipated benefits that we want to realize through the “Global supply chain planning” strategy. To implement the anticipated picture, we develop a complete plan and solid foundation by adopting these seven pillars.
Yes the development of global supply networks is an ethical and sustainable strategy
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