Globalcast Supply Chain Case Study
Excerpt from Case Study :
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…
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…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…
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