Achieving global synergies
The concept of synergy is simple: the whole should be more than the sum of the parts. It is often described as the ‘2 + 2 = 5′ effect. The search for synergy is one of the main drivers of the trend towards the globalisation of industry, particularly in manufacturing and logistics.
It has often been suggested that there can be significant benefits if R&D, product development, manufacturing and marketing can be coordinated in order to avoid ‘re-inventing the wheel’ country by country, and also through economies of scale in procurement and production.
Japanese companies have approached world markets in a noticeably co-ordinated way in industries such as automobiles, consumer electronics and machine tools. Even where they have established offshore manufacturing in the form of European ‘transplant’ factories, they still seek to ensure that they are managed within the framework of their worldwide strategy.
In areas such as procurement, opportunities exist for significant economies through centralised purchasing. Many multinational companies (i.e. companies with multiple local operations) found that they were incurring considerable cost penalties by sourcing components, packaging material, transport and other services locally and independently.
Perhaps the biggest opportunity for global synergy lies in the coordination of the physical logistics system. If companies are organised nationally with a high level of local autonomy in logistics management, then the likelihood is that there will be a cost penalty that can significantly erode profits. Hence the pressure that now exists in such companies to centralise the co-ordination of transportation and warehousing, and to balance worldwide flows of product and inventory decisions.
A key area for the achievement of global synergy is through the use of global order management and information systems. With complete visibility of worldwide demand and supply, the organisation can identify least-cost service options — for example, which customers should be sourced from which location so as to achieve optimum production and transportation economies whilst minimising inventory. Communications technology enables organisations, if they wish, to centralise order management and customer service through call centres, where the customer only places a local call. Whilst many companies prefer to localise their customer liaison through, for example, local sales offices, there is no reason why at the same time order processing and management cannot be centralised.
Standardised yet customised
Much has been written about the globalisation of markets, but we must be careful not to assume that the world is necessarily ready for standard products. There are still considerable differences in local tastes, preferences and requirements. For example, language differences mean that packaging will often need to be specific to a country or region, and local regulations may require product modification and so on.
All of this presents a significant challenge to the management of the global logistics system. For example, even a basic personal computer will need to be produced in different versions to take account of local voltage and plug type, and the keyboard and manuals will need to take account of the language of the user, as might the software itself.
A number of issues are raised by the need to ‘localise’ products, particularly in a production-orientated environment where the goal is more normally to seek unit cost reduction by producing a uniform product in volume. Specifically, the questions to be answered are:
Can the final configuration or assembly of the product be delayed until real demand is ascertained?
At what level in the chain should inventory be held, and where should final configuration take place?
Where should the forecast be made — in the local market, or at the centre?
The benefits of postponement are reduced inventory holdings and greater overall flexibility, but in a global business final configuration of the product may take place locally or centrally, depending upon the economies of production, transportation and packaging.
One of the most frequently quoted examples of the application of the postponement concept is that of Benetton, the Italian apparel manufacturer and retailer. Benetton revolutionised the knitwear industry through innovation in the garment manufacturing process, enabling it to hold only one colour of knitwear in stock — plain, undyed grey. This dramatically reduces the amount of inventory held in total, but also improves flexibility as the garments can be dyed to any colour — thus enabling Benetton to meet demand in a myriad of local markets. In a global fashion business with different seasons, trends and local preferences, this degree of flexibility was widely believed to have provided Benetton with a significant marketing edge. However, even Benetton has reappraised its position on ‘think global, act local‘.
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