Praveen Kishorepuria, Mark Quinn, and Adam Mussomeli | July/August 2012 | 22 | 4
Maximizing global demand and supply opportunities
Years ago, many US manufacturing companies moved their operations overseas to produce consumer products and improve profitability. These goods then were delivered and sold to Americans for a cheaper price. Today, these same developing countries are seeing an explosion of buying power. Middle-class populations worldwide are growing more sophisticated and affluent. Over the next several years, they are anticipated to increase by about 70 million people. These people also are becoming more tech-savvy—more than half of internet users worldwide live in emerging markets. This enables them to access, review, and purchase consumer products through popular social media sites or mobile phones virtually anytime and anywhere.
Many manufacturers are trying to take advantage of these developments, but it’s not as easy as making a few minor adjustments to their operations. Rather, business leaders must carefully examine how to best leverage supply chains in emerging countries in order to effectively produce, distribute, serve, and expand services to local economies. This means deploying a supply chain strategy that aligns with the larger business plan, improving operations, recruiting top talent, and understanding local laws and nuances. In this context, consumer products manufacturers should consider five imperatives in their efforts to compete effectively in new markets and avoid common mistakes.
1. Align with the corporate strategy.
Manufacturers should take a holistic approach when aligning manufacturing and distribution operations with the larger business strategy. This means determining how research and development, marketing, sales, finance, information technology, and human resources fit together to achieve the company’s broader business objectives.
Business leaders should determine profit targets and collect and analyze data from various market drivers, including consumers, competition, regulatory concerns, and internal constraints. This may help them establish a product portfolio that meets customer needs and is competitive, viable, and profitable. Armed with this information, company leaders can better manage and structure their manufacturing and distribution operations: determining what can be outsourced or made in-house, identifying producers and suppliers, developing and implementing production technologies, and more.
2. Manage the global supply chain network.
While many companies have designed detailed marketing plans for emerging markets, they’ve fallen short in developing an effective supply chain. Doing so is not easy, but it can improve performance by 5 to 15 percent. Leaders should consider local conditions and factors—such as the dependability of local utilities, regulatory policies, labor and transportation costs, infrastructure, supplier strengths and weaknesses, and cultural norms—when customizing a global supply chain. It’s also important to find data on overseas locations that are reliable and comparable.
Professionals should think cross-functionally, incorporating human resources, facilities, and tax and regulatory perspectives when creating a rigorous supply chain design. For instance, a human resources perspective can help reduce turnover and wage and benefits costs while improving productivity.
Similarly, companies can make significant gains by comparing financial and risk conditions of potential locations in a supply chain network. Business leaders also must consider tax policies and treaties, customs and duties, and tax incentives for locating facilities, among other factors when working to improve performance across the enterprise.
3. Improve manufacturing and distribution operations.
Consumer products companies can improve the productivity, flexibility, and speed of their manufacturing and distribution operations. It takes rigor, discipline, and imagination to look across the supply chain for significant savings. For example, if companies analyze the true profitability of their product categories, they may find a handful of categories produce the majority of profit. As a result, they may decide to collaborate with some players or outsource categories to save money. Companies also can use certain metrics, such as operating equipment effectiveness, to quantify and improve manufacturing efficiencies.
When companies develop new products, they should accommodate differences in culture, taste, price sensitivity, and regulations within each emerging market. This requires supply chain involvement in the early stages to identify production and delivery costs and develop a network of reliable suppliers and transportation providers. Consequently, this can help avoid delayed launches, product safety problems, and regulatory compliance issues, among other setbacks.
Moreover, companies that collaborate with local suppliers can help develop new products and improve existing ones. They should only personalize marketing, sales, and product development to the particular market, but also understand local preferences in product packaging. And supply chain services and pricing always must be customized with an eye toward the customer. Many companies tailor services to meet customer demands, but fail to adjust product pricing accordingly.
4. Deploy a governance model to manage risk.
As a company grows globally, business leaders should rethink their relationships with suppliers and service providers. They will need greater visibility and oversight to effectively manage the risks of a distant supply chain. This means establishing a formal program to qualify, certify, and manage outsourcing partners, such as contract manufacturers and component suppliers.
Programs like this establish standard operating procedures for dealing with partners and providing product consistency, such as in the areas of price, performance, and quality. These procedures might focus on governance structure, product specifications, certification and
performance requirements, contractual and legal terms, and corporate values and culture.
Plus, company decision makers have come to recognize the value that foreign offices play in monitoring remote operations. These offices can serve a dual purpose as a legal entity to provide tax and duty savings.
5. Focus on talent in the supply chain.
As consumer goods supply chains become global, there is a greater need for talent with specialized knowledge and experience. Some companies are developing, recruiting, and retaining talent to fit the skills needed to manage these supply chains. Business leaders should recognize that employees in various regions and of different ages are motivated in distinct ways. For example, Gen Y employees—the youngest generation in the workforce—cite additional compensation as a primary motivator, while baby boomers point to strong leadership. Competition to find and retain high-quality supply chain managers is intensifying.
There are several steps companies can take to retain leading employees and decrease turnover:
Managing supply chain complexity
- Focus on high performers who drive the company’s performance.
- Demonstrate leadership commitment to help earn employees’ respect and dedication.
- Make employee retention and management top priorities.
- Tie supervisor bonuses and rewards to turnover numbers.
- Build trust through open communication.
- Collect and use institutional knowledge to manage and retain employees.
- Create budgets for social events that engender a stronger internal network.
- Build the company’s brand so the organization is known as a desirable place to work.
Growing economies can be a springboard for improving the corporate bottom line. But effectively tapping into these markets has implications for a company’s business strategy, supply chain network, and risk management capabilities. It’s not just about aligning the supply chain with broader business goals, but also redesigning it to address unique and local challenges.
Business leaders should improve the efficiency of supply chains, develop a better internal product development function, collaborate closely with suppliers and providers, and implement governance processes. They must take into account local factors and focus on identifying, retaining, and recruiting local talent. As demand for consumer goods has changed globally, manufacturers who supply those goods likewise must adapt.
Praveen Kishorepuria is senior manager at Deloitte Consulting LLP. He may be contacted at email@example.com
Mark Quinn is director at Deloitte Consulting LLP. He may be contacted at firstname.lastname@example.org
Adam Mussomeli is principal at Deloitte Consulting LLP. He may be contacted at email@example.com
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