When a firm becomes convinced that a global infrastructure makes sense, in spite of the complications mentioned, it must construct its network as a competitive system that can match or exceed the capabilities of competitors. An analysis of what is currently available from other networks and an honest appraisal of strengths and weaknesses of the best competitor versus the planned network is a good first step. This evaluation must include the poten- tial foreign locations and facilities as part of the greater network, from the sourcing, planning, manufacturing, staging, inventory management, distri- bution, and selling aspects.
With the influence of e-commerce being expected to dramatically impact multinational networks, two other considerations are how well structured is the network connectivity that will link the offshore sites with domestic loca- tions and headquarters, and how capable is the network system that will be required to take advantage of any surge in e-business or electronic commu- nications. Two sets of questions come to mind:
1. Is the supply chain linkage viable by existing (successful) corporate standards at each point of hand-off between partners? A positive answer means the efficiency of the global portion of the network will be as good as what is generally experienced domestically. If not, does the global linkage meet the needs of the targeted local market or provide a viable option for use in sourcing particular raw materials, parts, or actual manufacturing for the larger supply chain network? 2. Where any gaps do exist between acceptable standards and actual
performance, what steps are required and in what time frame to achieve viable performance levels? That means a plan and timetable will be established that brings the facility to acceptable performance in a reasonable amount of time that does not exceed the committed funding and payback. Too many global efforts are abandoned because sponsors presented overly optimistic timetables for meeting the pre- determined performance metrics.
As these questions are being considered, most global firms set up a meth- odology to monitor the progress and revise any planning before the effort becomes a bad experience. There are just too many stories of major firms experimenting with a global strategy that failed not to take the time for a careful planning exercise. Someone knowledgeable in total supply chain
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work, including the activity-based costs involved, should help establish that procedure and oversee results. Beginning with a solid process map describing the proposed end-to-end supply chain, this monitor should require a viable plan to be submitted for each crucial point of interaction. That means the sources of initial raw materials are identified and qualified, put to tests, and accepted as viable partners. The potential manufacturing sites are scrutinized and costs evaluated thoroughly to determine where the core competencies reside. Distribution is mapped, tested, verified under tough conditions, and determined capable of meeting competing standards.
Manufacturing competencies are put to an extremely rigorous analysis to make certain best practices will result in lowest total costs. This is a very difficult exercise for most organizations. As alternate foreign sources or man- ufacturing sites are considered, the local manufacturing group will typically insist they can match anything done offshore. I personally encountered one particularly difficult situation when working with a firm manufacturing home appliances. While the firm had a strong and generally effective cost improvement effort, there were areas we found where a foreign source was better, but not in the eyes of the domestic manufacturing personnel.
In one example, the firm was winding its own fractional horsepower motors. The superintendent of that area proudly showed me data confirming 12 consecutive quarters in which the plant had reduced it costs. Unfortu- nately, this area was a bottleneck in the manufacturing flow and an offshore source was available with 30% lower landed costs. In the end, senior man- agement had to make the very difficult decision to close the domestic oper- ation and use the foreign source, having proven its viability with a 6-month test and documentation of better results.
As the analysis and decision-making progress occurs, one aspect of global planning will begin to emerge — the need to only participate directly in the supply chain when there is a clear level of competency. Otherwise, a constit- uent must give way to a more qualified partner. As global supply chains mature, one thing has become apparent — the traditional linear supply chain operated by a single, centrally positioned firm will be replaced by a network system that could contain one or more constituents working with multiple networks because they bring skills not available from the central firm. These global value chains will revolve around the nucleus firms in the center of activities, but will be characterized by the presence of external companies, which can perform process steps better than any other entity. The smart nucleus firm will work this development to the point where fully owned and operated sites are challenged and kept in the system only if they have superior competencies. The final model will include supplying, manufacturing, and
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delivery specialists, all cooperating at Internet speed to satisfy business cus- tomers and end consumers.
In this scenario, some firms will determine that it is feasible to own very few assets. The era of the virtual organization conducting business on a global scale is already appearing. Some drug makers, for example, are moving toward outsourcing all of their manufacturing except for the production of active ingredients. Lucent has plans to outsource most of its global manu- facturing, possibly in response to what one competitor, Jupiter Networks, has done. Jupiter does not own a single plant.
As this trend accelerates, we are going to see a wave of rationalization in the interest of supply chain efficiency. It will be a course of events impacted by the need for effective virtual networks and full e-commerce network connectivity across those networks. Navi Radjou, an analyst for Forrester Research, summarizes the situation this way, “Once offline specialists get their manufacturing assets networked, they will use their new-found supply chain visibility to identify and cut ties with slower-performing partners and use their network connectivity to establish dynamic trading relationships” (Rad- jou, 2000, p. 34). As these manufacturing connections develop, he sees further impact to existing infrastructures. With network connectivity, companies will “finally be able to evaluate their true performance in real time. But the picture won’t be pretty for money-losing plants — companies will start trading their unprofitable manufacturing capacity on spot markets or liquidating those plants altogether” (Radjou, 2000, p. 36).
With the supply and manufacturing parts of the supply chain in order and meeting appropriate performance standards, the analysis turns its atten- tion to delivery. The reviewers must pay particular attention to the shipment and logistics aspects of the total supply chain. Here the players are advised to consider building models that simulate the flows and inventories involved in global trading. Technology and software are available today that help this type of effort. Different scenarios can be considered with various sourcing, manufacturing, and distribution facilities; demands can be altered to deter- mine how the simulated system reacts; and contingency plans can be added to strengthen the central model being used. The traditional silo approach to analysis has to be abandoned in this part of the effort. All of the players in the network must come together and rigorously determine if the proposed global system meets or exceeds both local and international requirements.
With a viable model working, the players then turn their attention to the supporting technology and communication systems. Linking ERP systems is usually a part of this exercise and a very daunting requirement. A global distribution system, however, must be integrated so capacity and delivery
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constraints are quickly made apparent and rectified. Flows of inventory must be visible online with high degrees of accuracy. Planning has to be visible from end to end so each player knows how to respond or revise its operations in the face of emergencies. The whole effort should not be rushed, but should be carefully analyzed, especially in light of the complications and solutions mentioned in this chapter. The results can be very rewarding, as we shall illustrate in the following case example.