Executive Briefings

Globally Integrated Supply Chains? Sounds Good on Paper. But Reality Suggests Otherwise, IBMer Says

Global integration is the ultimate goal of consumer electronics supply chains. But for many companies, it remains just that-a goal. So believes George Bailey, general manager for the electronics industry with IBM Global Business Services. Speaking at the recent Consumer Electronics Supply Chain Academy in Las Vegas, he said consumer electronics companies have a long way to go before truly integrating their operations around the world. One problem is a growing lack of predictability-"There has never been less of it in the supply chain," Bailey said-brought on by increased outsourcing and the dispersal of staff around the world. Technology is also a barrier; many companies have multiple instances of enterprise resource planning software at their various locations. Meanwhile, the rush is on to place back-office functions in low-cost countries. That's why India accounted for 66 percent of new jobs at IBM in 2007. Yet growth in the market value of consumer electronics companies is slowing, with return on invested capital hovering in the 3- to 4-percent range. The industry, Bailey said, is becoming "a net value destroyer of shareholder wealth."

Companies might be multinational, Bailey said, but they aren't global. Their operations are fragmented, and information moves too slowly across the chain. Still, globalization doesn't mean centralizing the management of all operations to achieve supply chain harmony. On the contrary, it requires distributed decision-making, on the part of individuals who are close to customers. At the same time, data centers need to be shifted to where they can operate most cheaply. Even Japan is waking up to the need for a globally distributed workforce, Bailey said, noting that Nintendo gets its chips from IBM in New York and builds product in China. The Holy Grail of globalization, however, won't be achieved through small steps. Bailey sees a shift away from the Japanese practice of "kaizen"-meaning continuous, incremental improvement-to sweeping corporate transformation. Companies must rethink their supply chains in line with global production and global sales. (Sony, for one, is "equalizing revenue sources around the world.") It's time for another period of major change in the consumer electronics industry, Bailey said. "Otherwise the business goes away."

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Global integration is the ultimate goal of consumer electronics supply chains. But for many companies, it remains just that-a goal. So believes George Bailey, general manager for the electronics industry with IBM Global Business Services. Speaking at the recent Consumer Electronics Supply Chain Academy in Las Vegas, he said consumer electronics companies have a long way to go before truly integrating their operations around the world. One problem is a growing lack of predictability-"There has never been less of it in the supply chain," Bailey said-brought on by increased outsourcing and the dispersal of staff around the world. Technology is also a barrier; many companies have multiple instances of enterprise resource planning software at their various locations. Meanwhile, the rush is on to place back-office functions in low-cost countries. That's why India accounted for 66 percent of new jobs at IBM in 2007. Yet growth in the market value of consumer electronics companies is slowing, with return on invested capital hovering in the 3- to 4-percent range. The industry, Bailey said, is becoming "a net value destroyer of shareholder wealth."

Companies might be multinational, Bailey said, but they aren't global. Their operations are fragmented, and information moves too slowly across the chain. Still, globalization doesn't mean centralizing the management of all operations to achieve supply chain harmony. On the contrary, it requires distributed decision-making, on the part of individuals who are close to customers. At the same time, data centers need to be shifted to where they can operate most cheaply. Even Japan is waking up to the need for a globally distributed workforce, Bailey said, noting that Nintendo gets its chips from IBM in New York and builds product in China. The Holy Grail of globalization, however, won't be achieved through small steps. Bailey sees a shift away from the Japanese practice of "kaizen"-meaning continuous, incremental improvement-to sweeping corporate transformation. Companies must rethink their supply chains in line with global production and global sales. (Sony, for one, is "equalizing revenue sources around the world.") It's time for another period of major change in the consumer electronics industry, Bailey said. "Otherwise the business goes away."

Visit www.ibm.com