Managing a Global Supply Network

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:

• Multiple global locations – Organizational divisions located in different places around the world
• A large number of cross-organizational processes and units located around the world
• A multi-stage supply chain with links in more than one location
• The need to handle a wide variety of events around the world
• Ability to provide local support and solutions to customers and suppliers around the world
• The need to standardize its products for each locale
• Mutual support and cooperation among operational sites

Global management presents many challenges, difficulties and dilemmas related to running a supply network and management system. These include:

• Opportunities and risks for the organizational supply chain's position and stability. Global operation organizations must handle more complex design, management and control
• Guaranteeing total cost of ownership – the ability to provide the optimal global solution while guaranteeing cross-continent and cross-organizational operational efficiency from an organization-wide perspective
• Maintaining operational flexibility in order to fulfill the different and changing needs of each and every location, while handling multiple incidents and changing circumstances at the various sites
• Providing operational solutions, including common requirements, supply and designs for multiple suppliers at multiple locations
• Guaranteeing the global organization's economy of scale by utilizing global agreements, operational infrastructure and inventory management
• Guaranteeing collaboration and overlaps among the various sites to ensure flexibility, survivability and mutual support
• Creating uniform processes at the different sites to enable central management and control
• Ensuring an accessible and transparent data infrastructure that will enable the main office and remote sites to share information
• Bridging the differences between the various sites, suppliers and clients located around the world. This includes cultural and language differences as well as the need to localize products and services

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:

• Studying the global company's core business areas to ensure that the global supply network is supported at the organization's business level and to give it a competitive advantage in its own value chain. The global supply network must identify its core processes and business fields so that they can contribute to the company's business. One way of doing so is to choose suppliers that can support the organization's business strategies, for example, by selecting UPS or DHL as distributers for a company that presents its fast delivery time as one of its competitive advantages. Another option is to select a logistics supplier who can provide necessary storage space
• Implementing the supply network approach to create a careful balance between the local and corporate units based on the Global approach
• Creating a global performance metrics system that supports the company's business in order to manage, control, supervise and support the remote sites and also supports transferring data between the corporate and remote sites and between the various remote sites. Alternatively, providing feedback by publishing the measures calculated for all of the sites may serve as an incentive for regions that display poorer performance and enable them to learn from leading sites
• Defining operational and managerial processes that support standardization, clear interfaces and business frameworks that are as uniform as possible in order to guarantee management, control and operational efficiency that will enable:
  a. Independent activity in the remote sites and reduced corporate involvement – a global approach
  b. Implementation of the global approach while granting remote sites independence and the ability to localize their business according to the operational and cultural regional demands
  c. Flexibility to preserving the ability to offer localized solutions and processes even at the expense of procedural uniformity
  d. Efficient and effective management of global organizational resources, including resources both at the corporate and remote sites
• Dividing supply network activity between the units so that the majority of strategic policy making occurs in the corporate unit while operational/tactic activity is conducted by the remote units:
  a. Dividing the manufacturing and supply processes between the units in the supply network while backing the remote units and guaranteeing mutual support
  b. Developing fields of expertise in the remote units including leading global fields of activity when appropriate, as part of a process of empowering remote units and utilizing their proximity to suppliers and customers
  c. Leading tactic processes – enabling local units in the supply network to supply products to customers is an important part of the supply process due to those units' proximity to suppliers and/or customers
  One important issue that we were asked to address during an operational streamlining project that we ran for a multi-site plastics company, was whether each manufacturing site should specialize in specific products or if all factories should manufacture everything.
  Both alternatives are technologically feasible. The question primarily addressed the issue of production line efficiency vs. transport expenses. Specialty manufacturing sites reflects a more centralized approach that minimizes transitions and professional specialization overhead, though increases shipping expenses. On the other hand, when each factory manufactures all of the company's products, shipping expenses are lowered and customer service improves improves, though operational efficiency is inhibited as a result of increased transition time. In addition, this alternative is a better risk-management system in case of a crisis that halts operation at one of the factories
• Build global teams across multiple units in the supply network that include representatives from both corporate and remote units. This will promote operational processes and guarantee that they will be implemented in the corporate office as well as the remote units, as a result of the commitment required of all members of the team and the units that they represent
• Choose a leader – the project manager appointed for a cross-unit operational task should be the person who will be expected to take responsibility later on
• Empowering the remote/local units and encouraging them to take the lead and reduce their dependency on the corporate unit is a dilemma that all companies face when they begin to operate abroad and must appoint managers for their remote units. They deliberate over appointing a local manager who is familiar with regional culture and can communicate better with the employees, or one from the corporate office who is familiar with the organizational culture and that of the corporate employees. One advantage of appointing the latter type of manager is to improve communications between the corporate and remote units, although it also sends a harsh message to the remote unit that the corporate office does not fully trust it. The most common solution is to appoint an Israeli representative for the short term who will not necessarily be the manager at the remote unit, in order to strengthen ties between the remote and corporate units. For the long term, a manager is appointed at the corporate unit who will be responsible for maintaining contact with the local unit

There are several examples of how supply network and global management approaches are applied in the fields of procurement and logistics:

• Procurement management on a global level – build a local strategic procurement team in the country in which the product is manufactured while assigning them global responsibility for all procurement activities in the specified field and taking advantage of the local team's proximity to the suppliers
• Local procurement – The remote procurement team at the local site is given full responsibility for local customer support. The global procurement team at the corporate office will assist in locating global sources for supplies in order to support the local customers while defining target costs for local procurement. When assessing profitability, the advantage of local products should be kept in mind due to reduced logistics expenses, flexibility to accommodate changing customer demands and smaller inventory by purchasing lower amounts of supplies as needed
• Local supplier management – project management that includes initiating, negotiating and applying new contracts with local suppliers should be the responsibility of the local procurement team and not of the corporate unit. This will ensure that the local team will take full
  responsibility for supporting and managing the supplier on an ongoing basis
• Global logistics – one of the primary dilemmas that a global logistics manager faces is whether to chose a global logistics supplier that will provide all of the logistics needs at the organization's corporate and remote units, or to select local logistics suppliers at each site.
  The global solution that is offered by logistic suppliers is a global solution based on locating local suppliers according to the organization's needs, while the global supplier's responsibility beyond identifying these suppliers includes delivery management, supervising activity and settling accounts with the corporate office. Ongoing operational management responsibilities are shared with the organization's local logistics teams. The local logistics team must be involved in selecting the local supplier in order to guarantee its commitment to managing the supplier on an ongoing basis.

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