Despite many global manufacturers aggressive growth initiatives to move into new markets over the last few years, more than 80% fail to make the most of their global business network. New research published today by Deloitte reveals that significant opportunities to compete on cost and quality are being lost because of a blinkered approach when it comes to the design and expansion of their businesses.
The report, Unlocking the Value of Globalisation, shows that the majority of manufacturers do not take a broad all encompassing view when it comes to structuring their global operations. Instead they improve their complex web of suppliers, distribution centres and channel partners by fixing individual pieces of the network in their home territories.
Failing to take a global view of the business can have a devastating effect on profits, says Jane Lodge, head of the manufacturing practice at Deloitte. A critical finding from our research is that despite globalising their businesses through organic growth and mergers and acquisitions, most manufacturers value chains are often not built with first rate performance in mind.
According to the study, fewer than 15% of the global manufacturers have continuously invested in resources to improve their global supply chain network as a whole. This 15% have been rewarded with significantly improved operational performance. Indeed, several of these companies achieved 50% higher profit levels than those of their global peers.
Optimising a global operation is not an easy task, says Lodge. As manufacturers build new factories, add new suppliers and launch new products it becomes increasingly difficult to align the right people, business process and technology to keep up with rapid and complex globalisation. The result is often wasted resources and lacklustre performance.
Other critical factors include global and local compliance drivers, as companies expand around the world these must be considered. Competitive drivers include revenue growth, cost management targets, and innovation. Compliance drivers include regulation, tax issues, and intellectual property protection. Failure to consider these during global expansion can carry a high price tag.
For example, one company outsourced its global manufacturing operations to reduce costs but ended up with a higher cost structure because of the impact of regulations and duties. Taking tax into consideration when optimising a global supply chain is critical. The study shows that bottom-line profit improvement is nearly 100 % higher than if tax considerations are excluded.
Access to information on key metrics is also important to enable decisions to be made. However, fewer than 12 % of the companies studied were highly satisfied with the data they had relating to critical measures of performance, such as product profitability (9%), manufacturing cost (12%), distribution and logistics cost (6%), and customer profitability (4%).
Successful optimisation involves not only operational units, such as manufacturing, sales, and product development, but also tax, human resources, and legal departments across multiple countries. The vast majority of those manufacturers that successfully optimise their networks in a holistic fashion have one top executive in charge of the overall supply chain. It is crucial that the CEO and the top executive team take the lead.
In its study, Deloitte analysed data from almost 800 companies from multiple industries, including aerospace and defense, automotive, industrial and consumer products, life sciences, process, paper, chemicals, high technology, and telecommunications equipment, and they range in size from less than US$ 50 million to over US$1 billion in revenues. Together they represent about US$ 1 trillion in revenues.