Whether through offshore sourcing, manufacturing, selling, R&D - or some combination of the above -the value chains of most companies today are dispersed around the globe. The result is an exponential increase in supply-chain complexity and in the difficulty of synchronizing supply and demand.
In a series of in-depth studies, Deloitte Research, New York and London, is examining this trend. Its Global Supply Chain Benchmarking Series is based on surveys of 600 mostly large, global manufacturers in the U.S. and Europe. The report, released last year, "Mastering Complexity in Global Manufacturing," revealed that nearly all of these manufacturers now view the entire world as their market and as a place to sell, source, manufacture and engineer their goods. More than 80 percent sell outside their home regions and just over half (53 percent) have shifted production to lower-cost areas such as China, Mexico and Central and Eastern Europe. Additionally, three out of five of these companies outsource at least portions of manufacturing and engineering.
The drivers of these trends are many, according to Deloitte, and include immense margin and cost pressure from increasingly large customers, the mandate to cut engineering costs because of the growth in new products, and the need to build markets in emerging economies.
But while most companies seem to embrace globalization, few are well prepared for the transition. Indeed, for the majority of companies surveyed in this study, globalization and mounting value-chain complexity had an unpleasant side effect: lackluster business performance. Gains from lower-cost offshore operations or entrance into new markets were more than offset by additional costs, operational problems and quality risks.
"What we are seeing is that companies are going global in piecemeal fashion," says Peter Koudal, director of Deloitte's Manufacturing Institute. "We see very few companies putting together the pieces on a global scale, optimizing their plan and making the right decisions from a global point of view."
|"By far, the number one stated imperative for revenue enhancement was innovation and new product indroduction and development."|
- Doug Engel of Deloitte Consulting
|"The ability to model the supply chain is the difference between engaging as a business partner as opposed to a functional vendor."|
- Bill Gordon of Caterpillar Logistics
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