Keys to high-performance global sales and sourcing
By Patrick M. Byrne -- Logistics Management, 4/1/2006
Last month we opened a discussion of global supply chains and how important it has become that they simultaneously support companies' international sourcing and selling efforts. The incentives for doing so are clear and conclusive: According to a 2005 Accenture survey of U.S. and European executives, more and more business is being conducted outside respondents' home markets.
Respondents to our survey reported three-year increases of 25 percent to 30 percent in the following areas:
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Spend for finished goods outside their home markets.
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Spend for semi-finished goods outside their home markets.
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Spend for raw materials outside their home markets.
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Supply bases outside their home markets.
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Sales revenue outside their home markets.
That trend is expected to continue, with respondents forecasting increases of 10 percent to 20 percent for all five categories over the next three years. Furthermore, executives at U.S. companies are forecasting increases of between 20 percent and 40 percent across all categories.
Although U.S. companies say they plan to increasingly rely on overseas sales and sourcing for revenues and profits, it's unclear how well positioned they are to create and support a truly global footprint. The second half of the Accenture survey examined this issue.
To begin, we presented executives with a list of six global operations capabilities and asked them to identify which ones are currently in place at their companies. As shown in the graphic, each of the six capabilities has been implemented on average by roughly half of the respondents.
Does this mean the glass is half full or half empty? Our view is that it's more useful to view the glass as half empty: Despite years of expansion into emerging markets, many companies have been slow to create true global operating models. Most, in fact, still have organizational and process capabilities that are fragmented on a market-by-market basis.
Most respondents (88 percent) also confessed to having suffered during the last 12 months from poorly executed or poorly designed global operations, which they blamed for higher costs, lost revenues, or lost margins. Further supporting the half-empty perspective, we observed that an average of only 13 percent of respondents (19 percent in the United States and 7 percent in Europe) have all six global capabilities in place and that only 21 percent (27 percent in the United States and 14 percent in Europe) have implemented any three of the six.
It also is notable that survey respondents are more concerned about how global operations support business growth than they are about how global operations enable low-cost sourcing and manufacturing. Thirty percent stated that successfully launching new products and services is their most important global operations objective, while another 18 percent concluded that developing the optimal distribution and customer service network is most important. Both of these objectives focus on supporting sales and revenue enhancement. Conversely, only 15 percent made finding reliable, high-quality, and cost-effective offshore providers their top priority.
Regardless of emphasis, the above research findings tell us that companies must do more to develop supply chains that concurrently optimize their inbound and outbound flows of components and finished goods. Clearly, survey respondents are also aware of this need: One of their most frequently cited challenges included implementing effective globally or regionally integrated sales and operations planning processes for key markets. Another was designing a procurement, manufacturing, and distribution network that delivers quality product in the scheduled time frame and at the targeted cost-of-goods sold.
Unfortunately, only a few companies have been able to successfully develop supply chains with optimal inbound and outbound flows. Part of the problem could be that companies striving to manage a global supply base and address the complexities of emerging markets are underemphasizing total cost of ownership. Many also fail to define an operational footprint for each product type—one that takes a complete, end-to-end view of direct, indirect, and hidden costs.
The views and business plans of survey respondents are helpful research tools. But the real value of this report could be that it demonstrates broad support for global operations that concurrently seek to minimize landed costs and maximize market growth.
Like never before, achieving such an objective requires a global operating model that effectively balances time-to-market, service, and cost. On the sell side, the model's key input is degree of demand and supply complexity, which is influenced by the levels of product differentiation and assortment, the product portfolio's life cycle or risk of obsolescence, and the degree of required customization. On the sourcing side, criteria include production lead times, intricacy of the bill of materials, average lot sizes or production runs, and relevant cost drivers (such as scale, labor requirements and skill levels, or enabling technologies).
Building the most effective global supply chain model is a complex endeavor that is highly industry- and company-specific. However, the universal key to success is an understanding of individual market and customer requirements, and factoring them into specific landed-cost and time-to-market targets for each product. In this way, global selling and market-making can be combined into a single bilateral, end-to-end process.
To download a copy of the complete research report, World Views: Achieving High Performance Through Effective Global Operation, go to www.accenture.com/supplychain and search for "World Views."
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