Advocates and evangelists for globally integrating your operations often provide a tall order for changing how you do business. Some have grandiose, utopian schemes of how global synergies can be found everywhere, and how global integration is a cure all for every supply chain woe you have.
I should know. I'm one of those advocates. But here's something that you won't hear from most: There are a lot of areas of your business that can't achieve global synergies. In fact, pursuing global synergies in these areas may not only be wasteful adventuring, but even potentially destructive.
Companies need to take a pragmatic and objective view of what can be achieved and what can't be achieved with global integration. There are many areas that are prime to find synergies, cost savings, and new advantages. I believe these tactics need to be pursued aggressively. At the same time, there are other areas that should be avoided. Besides waste, their failures can also sour the perfectly good globalization tactics.
I think many organizations would love a handy checklist for what they should and shouldn't globalize. Imagine, a clear list, in black and white, of supply chain functions to globalize, and perhaps the exact percentage of how much costs you can squeeze out of them.
This, of course, is a fantasy.
The truth is that you need to ask yourself (and your team) the hard questions about what you are really trying to achieve. Would this process benefit from standardization? Would this data be more useful if it was global? Is there a competency or skill that can be optimized through centralization or collaboration?
Let me clarify that we use the term 'globalization' in different ways. Sometimes we mean that we will centralize and standardize a function that many (or all) countries will leverage. These are often shared services centers or groups of similarly skilled people doing routine and repeatable work. Other times we refer to globalization strategies that leverage unique aspects of a specific location (e.g., proximity, labor forces, markets, governments) that produce distinct business value and are not necessarily cost plays.
Some of the same phenomena responsible for creating value from global synergies can, if applied to the wrong component of a business, destroy value. Making these decisions is typically unique for each organization, and rarely can we just apply rules about specific functions that apply to everybody. When examining a specific function, be it procurement, manufacturing, distribution, etc., I always question whether the job it performs is largely the same globally or whether it has many geo-specific features. Is the product or work performed generally a commodity within the organization? Then it is probably a good candidate to centralize globally. Does the function have a specialized operating model or customer base? Then it probably should be local.
Going through a realistic checklist of global synergy levers takes some work but is exponentially more useful.
Here's my 'checklist' for determining globalization priorities:
- Would the capability benefit from common standard processes?
- Would the capability benefit from centralized operations?
- Are there advantaged to using globalized operations in this instance?
Common Standard Processes
When a common process is used across divisional or geographic boundaries, best practices are easier to implement, and process changes are less expensive to execute and maintain. However, if different divisions or geographies operate substantially different business models, the standard process could actually introduce inefficiencies elsewhere. A standard process for managing trade promotion pricing for a homogeneous group of distributors is one thing, but if a company has dealers, direct sellers, value added resellers and OEMs, the trade promotions process has to have a number of variants to serve each channel's customers differently.
To make it work, break the process into smaller sub-processes and standardize on some shared sub-processes to capture some of the value. Once the common sub-processes are standardized, then tune the non-standard portion of the process so that it becomes a real differentiator.
Centralized operations take common processes to the next level by organizing them within one organization and often co-locating workers in a single location. For example, finance shared service operation often achieve benefits by pulling all types of finance and accounting personnel from the divisions and rolling them up to the CFO. A single organization makes standard processes easier to manage and improve, and performance metrics and improvement goals easier implement. Co-location benefits include easier cross training, workload balancing, and opportunities to capture labor arbitrage benefits. Yet the very same tactics can work against high-touch operations where physical proximity to customers, other employees not in the centralized function, or other business processes is a necessity.
To succeed in centralized operations, look at creative ways to break the operation out into high touch and low touch components. Consolidate and centralize the low touch portion of an operation. The high touch portion can then be re-configured to do more of what it does best -- collaborate directly with customers, channel partners and clients.
Globalized operations, in turn take the centralized operation and derive additional value from location. Labor arbitrage has historically been an impetus, but other more subtle and strategic benefits can accrue to the global centralized operation, such as entering high growth locations like India, China, and the Philippines. Establishing major centralized operations in attractive markets brings know-how on culture, logistics, market requirements and how-business-gets-done local knowledge as well as a pipeline of employees for operation expansion. But when nuanced communication, citizenship or home market technical talent can't be found in the growth markets, a foreign operation center may be one step too far down the globalization continuum.
Try experimenting with increasingly sophisticated work centers in growth markets. Start with low risk work like T&E processing and invoice matching before moving on to accounting and benefits management. The benefits of globalized operation increase with the level of sophistication of the globalized centers. Moving all product development for a certain production line to China or Brazil gives a company a big leg up on the competition designing from their domestic work center.
Hopefully I don't disappoint by not having a yes or no checklist for globalization. If you find one, or somebody who says they have one, don't believe it. The only way to make these decisions is by taking a honest look at your business and making some difficult -- and hopefully smart -- decisions about how you attack global supply chain opportunities.
As Global Industrial Sector Leader of IBM Global Business Services, Dave Miller has helped many of the biggest and best Industrial brands in the world solve their complex supply chain challenges.
Interested in information related to this topic? Subscribe to our weekly Value-chain eNewsletter.