globalcast supply chain

Supply Chain
Q1. The trends outlined in the case have several implications for the way that Globalcast does business. First, the increased transparency and demands for one global price means that Globalcast will see shrinking margins. It will not longer be able to source from cheaper locations, charge a markup and pass that on to the customer. The customers, which tend to be large companies with significant bargaining power and access to information, are now seeking that low price themselves. If Globalcast wishes to continue winning this business, it will need to be able to provide that lowest price.
Further to this trend, Globalcast has to remember that its brand is not relevant to the end user, and therefore not really relevant to its own customers. As such, Globalcast is set to face intense competition from other suppliers around the world. As the supply chain becomes more globalized, the products that Globalcast makes become more commoditized. They are not going to be able to rely on their relationships with the buyers to maintain this business much further – they will need to bend on price. Both of these trends are going to have a downward influence on Globalcast’s margins.
The value profile that Globalcast currently has relies heavily on these relationships. Major manufacturers are accustomed to using Globalcast to handle the production and sourcing of inputs, but increasingly they are doing it themselves, and the larger customers in particular are in the position of cutting Globalcast out of the equation altogether, should they so desire. Globalcast is now being asked to add value in terms of sourcing from the lowest-cost countries, but to do so without taking the types of large margins to which they have become accustomed. This trend will have serious implications for the structure of Globalcast’s business. The relationship selling on which Globalcast’s business appears to be based, with in-country Globalcast reps selling to in-country manufacturers, is no longer a sustainable model, with sourcing being done more on a global level than ever before. Globalcast will need to streamline its operations considerably in order to continue to meet the needs of its customers going forward. It will need to produce the inputs at a lower price than the customers can produce for themselves. The good news for Globalcast is that where multiple customers need similar inputs, it can leverage production economies of scale and deliver, but only with significant streamlining of its operations.
Furthermore, Globalcast needs to be much more flexible. It should at this point consider that it is no longer in the input production business, but rather in the business of coordinating the sourcing of inputs, adding some value through minor production enhancements, and then delivering those inputs to its clients. If it can develop a stronger ground game to identify the lowest cost suppliers globally, it will be in a position to offer something its large clients would rather not worry about themselves. However, this will require a significant shift in Globalcast’s business model, which is presently not oriented towards a global approach at all. Not only will Globalcast need to make this shift, but it will need to structure its operations in such a way that it is much more flexible going forward, as the needs of its customers are starting to change at a more rapid pace.
Management of capacity and inventory planning will become increasingly important for Globalcast going forward. The company is currently in the position of using capacity in multiple countries to meet client demands globally, and has an advantage when doing so because the local Globalcast office adds its own markup when it does this. The problem going forward is that its customers are now aware of this practice, and are starting to cut out the middleman entirely to reduce their own input costs. Globalcast now needs to start thinking more like its customers and seek to reduce its own costs.
For its capacity and inventory planning, this means planning capacity and inventory at the global level, rather than the national or regional level. One advantage of this approach is that Globalcast will itself find a lower input cost, as it produces in the lowest cost countries, and at larger scale. However, to do this will require Globalcast to have much better demand forecasting than it has at present, because it will not be able to offload surplus at one factory on customers in another region. More likely, capacity will be focused on fewer, larger facilities. This means superior capacity planning, superior demand forecasting, and on top of that Globalcast will need to get a much better understanding of global shipping infrastructure. It sounds like the company has at present relied on more of regional shipping approach to shipping, but going forward it will need a more global approach. Thus, the company will need to build capacity in this area so that its own supply chains are much more efficient than they have been in the past. The need for greater efficiency is also reflected in the company’s tightening margins. As margins are squeezed by its larger customers, Globalcast will need to be efficient, regardless of what other factors exist, and in this case the other factors also point to an increased need for efficiency.
Ultimately, the supply chain design at Globalcast will need to change. The company will need fewer facilities. They may need to be more specialized. It will also probably want to be more flexible. For example, factor costs such as raw materials, labor and trade barriers can change over time, and Globalcast will need to be able to respond to those changes more rapidly than it might have done in the past. It would not work to build a factory with the intention that it supplies the world for fifty years; it would be better to be more flexible on such matters in case a country ends up losing its competitive advantages in a shorter period of time.
Furthermore, the locations strategy has to be based on meeting global needs rather than regional needs. This means having the willingness to eliminate a lot of the local or regional production that the company has right now. It will need to be more nimble in making such decisions going forward as well.
The push-pull node that it works with now will be more of a pull node going forward. For Globalcast, this means that it cannot simply rely on being able to push excess production to other locations, or at the local location with higher prices. Going forward, demand will drive production in a pull fashion, and Globalcast has to be able to meet that demand. One can imagine that things like just-in-time inventory systems will also be required of it, so Globalcast needs to orient much more towards a pull strategy, with nodes being solely for distribution, and without their own production.
To bring about these changes, Globalcast will in all likelihood need to take a more collaborative approach to its partners. The reality is that Globalcast has in the past had the business practice of selling to its customers, rather than working with them. There are several factors that are going to drive the company to adopt an increasingly collaborative approach. One is that the Globalcast needs to have much better demand forecasting in order to better meet the needs of its customers, while simultaneously cutting its own margins. Getting that information from customers is the first step in the collaborative process.
The second step of the collaborative process is that Globalcast will need to be more communicative with its customers about its cost structures, and work with them on requirements. Because it won’t be able to extract the same margins, it will need to ensure that it works with major clients to develop logistics systems that are increasingly efficient, creating win-win situations. If not, Globalcast will simply face increasingly squeezed margins that cause it to suffer so that its customers can thrive. An example of such a win-win would be becoming more involved in product design, so that when a company like Black & Decker wants something made, it works with Globalcast on product design in order to ensure that the needs of both parties are met.
Q2. I would describe Globalcast’s current supply chain management strategically as primarily reactive at this point, relying more on buffering than redesign (Angkiriwang & Pujawan, 2014). The company relies on information asymmetry to ensure that it maintains the margins it needs. However, it is also now faced with the problem of its customers closing that information gap, which is bringing about a squeezing of the margins. For Globalcast, it is still reacting to the changes that are taking place within its industries and the global supply chain, and typically reacting to the needs of its customers. The case describes a company to which changes are happening, rather than a company that is driving the changes that are occurring within its industry. The case describes a company that is looking for ways to adapt to a new environment, rather than a company that is looking for ways to leverage anticipated changes in its environment.
A more proactive approach for Globalcast would be to start to get in front of some of these changes. These changes are being driven by external forces – changes in the nature of global trade, changes in technology especially where communications are concerned, and changes in transportation – and these trends are large and long-lasting. As such, Globalcast should recognize that it has been doing business a certain way for a long time, but the world is unlikely to return to that time. More likely, these changes are only going to continue. Thus, Globalcast would do well to extrapolate these changes going forward.
Furthermore, Globalcast can be increasingly proactive by putting itself in the mind of its customers. If it was the CEO of one of its customers, what would it want to achieve in the next few years. By adopting a more collaborative approach, Globalcast doesn’t even need to imagine this scenario, it can simply ask. By understanding where its customers envision their own businesses, Globalcast can better interpret where its business will go in the coming years. The result will be that it is much better prepared to take a proactive approach going forward than it presently has been in the past.
Thus, product management needs to be more directly collaborative with Globalcast’s customers. From Globalcast’s perspective, bringing out alignment between multiple customers on commoditized parts will make it easier to supply those parts to all customers, while leveraging economies of scale. This approach won’t work for all parts, but there are going to be some parts for which it might well be successful. Another tactic in terms of product management is to collaborate to standardize parts within a product at the global level. This is already a macro-level trend for many of its clients. The benefit of the collaborative approach is that Globalcast can ensure that product design takes its interests into account. A client might have a need for a certain part, but be open to an alteration suggested by Globalcast that lowers the production cost significantly. Such collaboration would leverage both the customer’s expertise in product design and Globalcast’s expertise in production design for mutual benefit.
By taking more direct ownership of the production design element of this collaborative approach, Globalcast will also be placing the onus on itself to ensure that it always has subject matter expertise in this area. The former approach, where it could use regional arbitrage to ensure profit margins, is being replaced by a world in which there is no such opportunity, and margins have to be earned by being expert, and staying in front of trends. In other words, the new world means that Globalcast has little choice but to replace its former reactive approach with a proactive one. For Globalcast this also means taking a more proactive approach to risk management.
The high level story for Globalcast in the late 1990s is that the world, which to that point had seemed to change fairly slowly, was starting to globalize with a greater intensity, bringing about not only more frequent changes but ones bigger in their scope. Thus, a proactive approach is the only reasonable strategy to take. Globalcast will at this point need to invest in the proactive approach, as a pragmatic matter of risk management. Managing risks reactively by making moves to address changes in the market is not going to be nearly as effective in the future.
Thus, risk management is no longer a matter of putting out fires, but taking the steps to ensure that the fires are not lit in the first place. Investing in expertise is one of the biggest tactic moves to make the move to a proactive approach. Knowledge is an increasingly important commodity for Globalcast, in terms of risk management. The changes in its operating environment represent an existential risk to the company – if it is unable to react quickly enough to changes, it will find itself uncompetitive quickly. Therefore, Globalcast must commit to being the leader and innovator in its space. At present, many of its larger customers seem to feel that they can do it themselves, and that means that Globalcast’s entire business is at risk of being commoditized. But if it can carve out space for itself as the production and logistics experts, then its clients will still gain value from doing business with Globalcast, while the company is simulatenously able to maintain profitability. For a company that is not accustomed to being a leader, innovator or expert, this approach represents a profound shift. But no incremental shift can take a company from a reactive mindset to a proactive one. That shift requires a fundamental alteration in its approach to doing business, and that will not be made easily, but only with direct investment in knowledge, expertise and on top of that a commitment on the part of senior management to a shift in the entire organizational culture because of the emphasis on educated users (Elsbury, 2020).
The trend towards suppliers doing more value-added work actually supports this. Where Globalcast might have before simply produced and distributed inputs, the fact that its customers want it to add some value helps Globalcast. Any step where Globalcast has the opportunity to add value, even simple two-piece assembly, creates the opportunity for Globalcast to find its own unique solutions to problems. Any value-added step helps to decommoditize what Globalcast offers to its clients, which in turn provides opportunities for the company to foster unique expertise and value.
The fact that Globalcast already provides design assistance to customers is also valuable. This offering is something that will be increasingly important going forward, for a couple of reasons. One is that Globalcast will be producing at a much larger, more global scale going forward, so any incremental improvements in design, however small, will have a bigger impact because they will be spread over larger production volumes. Further, the customers are already used to Globalcast playing this role, and see it as some of the value-added expertise that Globalcast already provides. Thus, there won’t be any convincing needed for the customers, at least on the conceptual level. A change will be required on the part of Globalcast, in that it will need to do this at the global level, whereas this is now being done at the level of the small technical sales team at each factory. But that is an internal change over which Globalcast has control. The fact that the customers are changing their needs plays into this well, however. The customers had previously encouraged Globalcast to set up factories around the world; if the customers are now encouraging global production that makes it easier for Globalcast to align themselves with that model going forward, because they are not fighting the best interests of their customers but instead aligning with them.
Q3. The changes that Globalcast needs to make should take into account people, processes and technologies. On the people front, Globalcast will need to invest much more in highly educated technical talent going forward. The main difference is that it can leverage improved communications technology to make this knowledge global. The need for technical teams at each factory is diminished; instead, Globalcast can operate global technical teams at a lower cost, cutting the less knowledgeable and talented workers, and focusing on acquiring and maintaining only the best global talent in the relevant fields.
Another recommendation in terms of people is the need for the sales engineer sort of role in the company. Highly specialized technical staff are important, but further to that, they need to be able to communicate effectively with the customers. Where in the past it would be less important to have high end communication skills, now there should be more emphasis on communications skills to go along with technical skills, as both are required for success in this new environment. This doesn’t mean not having the best engineers, but the new environment emphasizes communication more than the old one did (Inbound Logistics, 2010).
In terms of processes, it is recommended that the company makes learning a process. The reactive approach to doing business emphasizes problem solving only when there is an apparent problem. But the proactive approach emphasizes recognizing problems, anticipating changes in the environment, and innovating before problems even occur. Being the leaders in the field in terms of knowledge is now a requirement, so the organization as a whole needs to have processes for acquiring knowledge and solving problems even before those problems are known to exist.
Another process element is that Globalcast will need to have processes for sourcing inputs. Before, it could just produce the inputs themselves because it had more pricing power. But stripped of pricing power and needing increased agility, Globalcast might not want to produce goods itself, but rather to source them from wherever it can get the best deal. So Globalcast needs processes in place for everything from sourcing inputs, doing quality checks on those inputs, and then logistics to bring those inputs to market from anywhere in the world. Furthermore, as the industry moves to where there is greater need for value-added approaches, Globalcast will need processes in place to deliver on that value-add, whether it is assembling component pieces or anything else.
With a much higher degree of collaboration required going forward, Globalcast has to invest more in communication technology. It is recommended that Globalcast design its internal communications systems around anticipated future needs. For example, using the best talent globally works better when there are means by which that talent care share information just as well as if they all worked at the same site. Collaborating with customers also requires substantial increases in technology investments to bring about that collaboration. Customers might all use different systems for communication, so Globalcast will either need to impose a single system on its suppliers or be incredibly flexible so that it can use multiple different systems to collaborate with clients.
A further recommendation in terms of technology is that Globalcast will need to make considerably more investment in production efficiency. Shrinking margins and the need to extract economies of scale means that any incremental improvement in production costs will have significant bottom line impacts. For Globalcast, the approach needs to be to not only produce at a global scale but also to be more agile than ever before. If there is any element of its design or production systems that is not modern, then that will need to be modernized. There is no room for inefficiency or waste in its systems anymore. Further, Globalcast will probably want to focus on production design, and then hire another company to do the actual production. Being able to design production systems that third parties can replicate will help Globalcast to relocate production to the lowest-cost provider countries, no matter how quickly those countries actually change. By taking apart the regional production paradigm, Globalcast will need to be more agile, and not building its own production facilities but instead being more of a production design firm will aid with this significantly, but also will necessitate some changes as to how production technology is utilized.
References
Angkiriwang, R., Pujawan, N., Santosa, B. (2014) Managing uncertainty through supply chain flexibility: Reactive vs proactive approaches. Production & Manufacturing Research. Vol. 2 (1) 50-70.
Elsbury, E. (2020) Supply chain strategy- proactive or reactive? Reveal. Retrieved July 9, 2020 from https://www.revealvalue.com/logic-supply-chain/
Inbound Logistics (2010) How to enable a proactive supply chain. Inbound Logistics. Retrieved July 9, 2020 from https://www.inboundlogistics.com/cms/article/how-to-enable-a-proactive-supply-chain/