Operations management, with the supply chain at its center, is the organizational backbone that controls the entire supply process. In recent years, there has been an increase in the number of companies that have begun to operate outside the countries in which they were established, thus bringing procurement and logistics to a global level. This transition from local to global activity presents the company with administrative challenges from the organizational perspective of managing remote sites, as well as the procedural aspects of longer, more complex operational processes that are not directly controlled by the managers and operations workers.
The article presents two innovative approaches that will likely be implemented in the near future in enterprise operations systems. One is the transition from a supply chain to a supply network and the second, the global/local, or “global" management concept.
Many companies have become international (companies that sell their products and provide services outside their home countries) or global (companies that manufacture and conduct operational activity in addition to offering sales and services in foreign countries). Local companies that do not operate outside their home countries often shorten their supply chains by collaborating with global suppliers.
Procurement and logistics management in global companies requires collaboration on the one side with production plants and suppliers all over the world and, on the other side with clients in different countries who are linked by complex logistic networks. These may include regional and local warehouses and dispatchers that distribute merchandise from the factory to the end customer without transporting equipment via the global company's facilities and, in most cases, even bypassing the global company's base country.
Global companies operate local offices in their target countries in order to maintain contact with the customers for sales, services and operational purposes. A glance at the routes taken by the merchandise produced by the global company around the globe reveals a dense delivery network. This approach towards global operational and logistic activity is referred to as a Global Supply Network and is a sophisticated, though familiar, supply chain model. The fundamental difference between the chain and network approaches can also be attributed to the activity on the supply chain. Indeed, from the perspective of processes and activities, the supply chain comprises a continuous chain of activities – from the design stage, to procurement, manufacturing and finally logistics, in conjunction with delivery of the product to the customer.
Nevertheless, there is a fundamental difference between the supply chain approach and the global supply chain approach with regards to the management and operation of procurement and logistics systems.
A global organization that is operated using the supply network approach has the following characteristics:
Global management presents many challenges, difficulties and dilemmas related to running a supply network and management system. These include:
To illustrate the challenges and opportunities, let us take a look at one particular global company, that assembles and sells machinery. This company faced an inventory management dilemma because their income was a function of their machinery's usage. On the one hand, the need to provide a high level of customer support meant scattering inventory amongst a large number of sites and as close as possible to the customer while, on the other hand, they sought to minimize the overhead of inventory management.
As part of our project, we mapped the supply networks for potential suppliers of generic perishable products that are not core products in each country and designed a process that enabled the local manager to purchase these items directly from local suppliers instead of placing a purchase request with the central warehouse on a different continent, thus reducing transportation time and shipping costs. The organizational tructure became less centralized and the local managers were given the authority to manage their local supply network through local suppliers instead of using the classic supply network in which the inventory is received from the central warehouse. In addition, we divided the organization's warehouses into three segments: local, regional and central, meaning that each warehouse held different items which were classified according to speed, mobility and cost. Fast products were placed in the front warehouses, near the client, while slower and more expensive products were stored in the central warehouse. The third stage of the project was to introduce an information system for managing the inventory as a function of the customer service level required at each site. The system aggregates inventory and requests, thus reducing variance and the amount of available inventory needed. These solutions reduced inventory expenses and improved customer service.
There are two types of organizational sites from the intraorganizational
perspective – corporate sites that are responsible for development, design and control; and remote sites. Corporate sites often attempt to force their opinions and decisions on the remote sites, claiming that they see the “big picture”, while the remote sites struggle to maintain their independence. They are convinced that their perspective is the “global optimum” and is in the best interests of the organization. They feel that their close proximity to the clients and the local market gives them a better understanding of the local needs and constraints and that “local optimum" will benefit the entire organization.
The primary dilemma that many organizations face is finding the optimal balance between decentralization and centralization in the corporate and remote sites. One approach is that the corporate units make the decisions and define policies and work processes, while the remote sites must follow their instructions. This approach is typical of global food and fashion companies with branches around the world that must be uniformly designed, enforce similar work processes and of course, use common suppliers. A second approach is the decentralization approach in which the corporate offices are responsible for supervising and defining general policies while the remote sites work independently and simply send their business reports to the corporate site.
A new global management model that balances these two extreme global management approaches is called GloCal – Think Global, Act Local.
The concept of globalization was first introduced in the 1980s but originally referred only to the strategic aspects of management and sales. McDonald's, for example, has developed the concept for years. Any branch of McDonald's anywhere in the world will have similar features such as visibility, training, high standards of service, policies, uniforms and more. These features were chosen by the corporate unit and their uniformity is maintained all over the world. This is the global aspect of their business. From the culinary perspective, though, there are different menus in different countries. The standard hamburgers are modified to appeal to different, local palates.
If we go back to the world of operations, this approach states that policies, operational approaches, measures and objectives are defined globally at the corporate level, in order to maintain consistency and preserve the ability to assess performance in different regions, while the actual execution is the responsibility of the remote sites who are certainly more knowledgeable about the ideal way of running the actual business. Any attempt to dictate alternative policies is destined to fail.
An example of a Tefen project for a global toiletries company included implementation and application of Lean methodology in the production lines. The corporate unit defined the project's necessity, methodology for execution and objectives for increasing income and profitability. A detailed rollout plan was defined at each site that incorporated organizational lessons learned from previous system implementations at other sites. The corporate unit defined that a Lean Champion would be appointed in each country to take responsibility for coordinating all activities at the country-wide level and to be the content expert. After each implementation, a site-level Lean Champion would be appointed at each site to implement ongoing improvements and enhancements. The corporate office took responsibility for performance measurements, control and publishing a monthly dashboard. The local operators worked with local contracting companies that they had selected to lead the process and utilize their familiarity with the language and culture, in order to maximize the success of the implementation. In other cases, technological modifications can be made or a different product line created that requires adjustments to be made to the official methodology dictated by the corporate unit.
Another example is a project that we conducted for a global medical device company. We were asked to provide Six Sigma training at the organization. The request came from the corporate office in this case, while the material was written and delivered by Tefen without any intervention from the corporate unit. In this case, the regional aspects were the predominant ones and the corporate unit was hardly involved in the practical aspects of the course.
One of the most important principles of global management is to empower the remote units and their managers while expressing appreciation for the quality of their work and performance. It is important to keep in mind that corporate managers do not encounter remote managers and employees in the cafeteria, the hallways or the elevators. Therefore, it is crucial to enforce regular managerial processes such as weekly meetings, QBRs (Quarterly Business Reviews), working together to define annual programs and of course, mutual visits to both the corporate and remote units, not only of corporate managers to the remote sites…
Combining the two innovative approaches that have been presented here – transitioning from a supply chain to a supply network and the global management approach, allows supply network managers and specifically procurement and logistics managers to improve their performance and ensure efficient control of the global operations management systems that they are responsible for. Procurement and logistics have been defined as the core fields of the global supply network, in addition to other operational fields such as manufacturing, design, inventory management, service, quality control and PLM (Product Lifecycle Management). The following principles are the keys to successful procurement and logistics management within a global supply network:
There are several examples of how supply network and global management approaches are applied in the fields of procurement and logistics:
In conclusion, the two approaches discussed here, of transitioning from a supply chain to a supply network and adopting a global management approach, will allow supply network managers and specifically the procurement and logistics managers to improve their performance and guarantee efficient management of the global operations that they are responsible for.
For further information concerning managing global projects - click here.
By Shlomo Ehrlich, VP, Head of GloCal Supply Network, ECI Telecom
Golan Meltser, Director, Tefen Israel