For to its entire global market. Another similar

For
several decades now, there has been a focus on optimizing manufacturing
activity. Although firms have also expanded manufacturing overseas in the
effort to tap into the customer base of emerging markets (Goker et al., 2014),
several large multinational firms have outsourced manufacturing activities to offshore
third-party suppliers, decreasing their owned assets in the effort to benefit
from lower labour, raw material costs and cope with changing technologies.

This
strategy, however, has several downsides. It may create competition from the
supplier, if they create and market their own similar product. In fact, Asian
firms are known to make market entries based by first making supplier
agreements with US manufacturing firms. In the perspective of the tech industry,
typically, less than 10 per cent of a high-tech company’s costs are direct
labour. Hence the decision to source offshore, simply to save on labour costs,
makes little sense if penalties are incurred elsewhere in the supply chain (Martin,
2016).

Focused
manufacturing also referred to as focused factories is another strategy global
firms have adopted in the effort to optimize their production activities. The
way focused factories work is that each factory produces a limited range and
mix of products for the firm to take advantage of economies of scale. A good
example of a company that has adopted this strategy is Procter and Gamble that
produces Pringles in just two manufacturing plants and distributes to its
entire global market. Another similar example is Tomato ketchup, a Heinz product
which is produced from just three plants for all of Europe. Heinz will switch
production depending upon how local costs and demand conditions vary against
exchange rate fluctuations. This is a good strategy to cope with demand
uncertainty. The downside of this strategy is characterized by longer delivery
lead times and higher transportation cost. The cost of transportation from the
manufacturing plant to the customer may deplete some of the production cost
savings that were the primary reason for adopting the strategy in the first
place. Similarly, the longer lead times may encourage companies to keep safety
stock that will increase the holding costs, again eroding the production cost
savings. Another limitation of this strategy is seen when a customer orders
different products in the same purchase order where the products are produced
in plants in different locations.  For
example, Sony used to manufacture digital cameras and camcorders in China,
attracted by the lower labour costs. However, they came to recognise that
because life cycles were so short for these products, it was better to bring
the assembly back to Japan where the product design took place and, indeed,
where most of the components originated.

On
the contrary, some firms have employed a strategy to have manufacturing plants
in all the countries they do business, treating each market as local and hence
producing to satisfy only the local market. The downside to this strategy is
that there is a big risk of shortages or surplus products when local demand fluctuates.
As a result, firms have decided to include some flexibility into this model,
allowing the plants to also serve the international market. Take an example of
Toyota Motor Corporation, whose strategy was to own manufacturing plants in
every market in which it operates. It however designed the plants to be able to
export products to other markets in case the local market weakens.

Global
manufacturing will continue to evolve with the change in demand, labour, energy
and transportation costs.

1.1       
Information
sharing    

Information
sharing can be explained in terms of information Flow Integration. Arun et al.  defined Information flow integration as the
extent to which operational, tactical, and strategic information are shared between
a focal firm and its supply chain partners. In this research, they considered
the sharing of demand-related information, inventory and sales positions,
production and delivery schedules, and performance metrics as indicators of
information flow integration. However, information flow integration can also be
looked at in the context of sharing information among the different functions
of a focal firm’s global supply chain.

Different methods of information
sharing between focal firms and supply chain partners have not only been
explored by academic literature but also been implemented in industry. Some of
the early initiatives of information sharing included efficient customer
response(ECR).

1.1.1       
Efficient Consumer response (ECR)

Efficient Consumer response is a
concept that was created by the processed food distribution industry. It was
defined as a strategic initiative working to overcome traditional barriers
between trading partners, thus eliminating internal barriers that result in
costs and time that add little or no value to consumers (ECRE 1996). It focuses
on using the accurate actual demand information of the consumer to drive
downstream flow of goods through the supply chain. For ECR initiatives to work
effectively, there needs to be a lot of data sharing between the supplier and
the focal firm. Historically, the use of Electronic Data Interchange(EDI) has
enabled data sharing among different stakeholders of a supply chain.

With accurate demand data flowing
from a focal firm to a supplier, value is created by improving the demand
planning, forecasting and replenishment (Arun et al., 2006).

However, sharing in accurate demand
data will only distort the demand signal further as it travels up the supply
chain causing issues such as poor production and capacity planning, cash flow
utilization and inventory management problems such as excessive inventory
holding or inventory shortage. Another perceived limitation of this method is
the information systems compatibility required between the supply chain
partners.

Procter & Gamble implemented ECR
practices for their European laundry detergent market in the 1990s and reported
higher margins (8%), faster category turnover (27%) and greater retailer market
share (12%). It can be argued that ECR practices lead to increased sales or
reduction of lost sales by reducing demand uncertainty for the supplier and
supply uncertainty for a buyer or focal firm.

BACK TO TOP