Developing a global logistics strategy
A number of issues arise when global logistics strategies are being considered. One key concern is the question of the appropriate degree of centralised direction as against local autonomy. Traditionally many companies have preferred to devolve decision-making to a local level, yet almost by definition it is difficult to see how global supply chains can be optimised in terms of service and cost if they are planned and managed on a fragmented, local basis. On the other hand the attractions of local autonomy are clear, in terms of responsiveness to the market and the ability to ’stay close to the customer’.
A second, related issue is the extent to which synergy can be released by global co-ordination, and whether this is compatible with local decision-making in sourcing, production and distribution. Many global companies, for example, have sought to establish ‘centres of excellence’, particularly in R&D and in production, whereby resources and/or technologies are concentrated for greater focus. However, separating new product development and production from the market may not necessarily be sound practice, especially where those markets are not homogenous.
Running in parallel with these two issues is the question of how the search for economies of scale in production and the benefits of standardisation can be reconciled with the need to meet different local requirements and to do so with ever-higher levels of responsiveness.
Each of these three issues has significant implications for the way in which logistics is positioned organisationally in the global business, and each is examined in detail below.
Centralisation vs local autonomy
There is a widely held view that globalisation implies centralisation of management and control. However, whilst there are attractions to central planning and strategy formulation, there is a basic conflict with the ever-present need to stay as close to local markets as possible.
In the case of logistics planning, the need for central decision- making but with local implementation is strong. Many companies have gone beyond the centralisation of decision-making to centralise production and distribution facilities. The concept of the ‘focused factory’ has taken hold in Europe, spurred on in the 1990s by political changes and further development of the European Single Market. Focused factories, as the name implies, concentrate on the production of a limited range of products often sharing a similar manufacturing process or technology. So whereas in the past companies might have factories in individual countries producing the full range of products for that country, now they might have fewer locations with each factory specialising in a unique product portfolio but producing goods in greater volumes.
An inevitable effect of focused factories is the greater complexity of transport and distribution, as one factory now serves multinational markets. Also, whilst substantial opportunities for economies of scale through centralised production may exist in many industries, there may also be the risk of longer lead times and the loss of flexibility in meeting local customer needs. Because local tastes can still be quite different, it is essential that the global business does not confuse the need for centralised strategy determination and pipeline co-ordination with the overly simplistic idea that globalisation is only about economies of scale in production.
In fact, many organisations are now learning that it is possible to coordinate logistics centrally and yet meet local needs cost-effectively. This is achieved by linking individual facilities, sales offices and supply sources through shared information. The concept now is one of ‘distributed distribution‘. What this in effect means is that we manage production and inventory as if they were centralised, but the actual physical location of production and inventories is determined by other factors — specifically, the market and/or sources of supply. The idea of ‘virtual’ inventory is central to this approach. Virtual inventory is managed as if it were a single inventory — allowing the total inventory in the system to be substantially reduced — yet it may be physically dispersed according to where it is most appropriate to hold it. SKF, through its Global Forecasting and Supply System (GFSS), is able to manage demand across Europe through a single centre, allocate production to specific plants, schedule transport between plants and local trans-shipment points and, in so doing, dramatically improve customer service but with much reduced total inventory and better utilisation of production capacity.
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