Euro Cast is currently experiencing the effects of a global supply chain trend that has vast implications for its industry. The trend is that more and more clients are expecting their downstream supply chain to absorb a greater amount of their internal business functions so that they can apply a lean approach to their own internal operations. This trend seems to be working its way downward throughout the entire supply chain. As a consequence of this trend, forward thinking supply chain analyst are beginning to examine the entire supply chain from a more holistic approach to see if allocation of various production functions really make sense in the grand scheme. This paper will provide an overview of some of the issues that are currently facing Euro Cast's supply chain's decision making processes.
Euro Cast is one of the world's leading manufacturers of metal and plastic molded components which are used in several other upstream industries such as the automotive, consumer durables, telecommunications, computer, power tools, and other related industries. The company can boast over one hundred manufacturing facilities worldwide and manages most of their different facilities as semi-autonomously managed. The level of ownership that a subsidiary has been shown to correlate with the innovative behavior of the firm (Buys, 2010). The semi-autonomous model has also shown other benefits such as breaking down traditional hierarchies and allowing subsidiary operations more flexibility to pursue profitability in their domestic markets as well as be more in tune with the local cultures (Nell, et al., 2011).
In the beginning of Euro Cast's initial expansion, the company's clients offered them a sole sourcing agreement in return for them expanding to the same regions in which the clients were expanding. Thus Euro Cast could open new operating facilities in proximity to their clients operations with little to no risk of securing product demand in the new markets in which they entered. However, over time the industry began to evolve and standardization of component parts was one of the trends that emerged. Standardization allowed for more efficient supply chains since it broke the traditional dependencies that firms had with their suppliers. Due to standardization of components, firms could source a growing number of their raw materials from a variety of sources and the sole-sourcing agreements between companies began to become a thing of the past.
Another result of this trend, companies could now source components from multiple sources giving them a significant amount of buyer's power in the market. The increased level of competition amongst suppliers helped to drive down profit margins for a lot of components manufactures. Firms were left to devise new strategies in which they can add value to their clients. Furthermore, the most recent development in the industry has been to diversify their product mix and offer more customization. Firms who can successfully achieve efficient customization capabilities can properly position themselves to add value to their clients. Clients are now requesting that their supplier not only produce the components, but they are also requesting that they customize these products by completing some level of finish work or assembly to the components. Basically, buyers in this industry are basically trying to outsource more and more of the production functions that were previously completed in-house and suppliers are diversifying their product mixes to attempt to absorb the value added segment of this trend.
Supply Chain Analysis
Euro Cast's supply chain will undoubtedly add many layers of complexity to its internal and downstream partners by trying to become a top-tier supplier to various industries. To achieve this task, the various facilities will basically have to become a make-to-order manufacturing operation that incorporates many functional processes that are outside the historical core competencies which has contributed to the company's current level of success. Although the profit margins are considerably higher, so is the level of complexity and the need for the company to evolve the entire business model. Despite the fact that the company will devote more of its resources to make-to-order requests, there are a plethora of options for the organization to complete this task.
One obvious way that the company could simplify the additional production requirements is too pass on as much of the burden as they can to their downstream supply chain. Although given the fact that Euro Cast operates in the component business the opportunities for this strategy might be rare. The products it usually manufactures are fairly basic and standardized metal and plastic components. However, as Euro Cast increases its product mix there may be opportunities to source some of its additional functional requirements to its own supply chain. For example, if there are multiple pieces to be added on to a component that can come from the same supplier, then the downstream supplier could be asked to complete whatever assembly tasks that they could to facilitate the finished production of the overall component.
Another two options is to either to make the changes internally, or secure a strategic partner to absorb the additional work load. The internal option would require a significant alteration in operations management and increase the complexity in the operational procedures that the company would have to manage. However, an external supplier would help to simplify the process considerably, yet Euro Cast would become reliant upon this supplier for a major portion of their value added process. Although this could act to reduce costs, the company would lose control of their operations management. Given all of the different strategies available to Euro Cast, it is difficult to determine which would be the most complimentary to the organizational goals. Given the two different options available, Lamming's model would call for an investigation into the entire supply chain in order to see what makes sense from a more holistic lens (Lamming, 1996).
Technology will also serve a fundamental role in managing the additionally the additional level of production complexities. The modern business environment requires state of the art information systems to be competitive. Technology can serve as a great asset to increase visibility. Two common systems that have been developed to help supply chains collaborate are the ASN (Advanced Shipment Notifications) and the SSM (Shipment Status Message). The ability to use technology to integrate distinct companies is a dynamic factor in ensuring all parties can properly react to supply chain disturbances and implement an approach to overcome problems (Rabren, 2010). Having the proper channels for communication and collaboration can decrease the surprises incurred with glitches by bringing these problems to the attention of supply chain planners before they can create any kind of bullwhip effect.
From a perspective that views the entire supply chain, it is much easier to design a supply chain that is sustainable. For example, if two business processes can be conjoined at one partner efficiently, then it makes little sense for these processes to occur at a later point in the supply chain or be organized in any other way. Therefore one technique that can be employed is to design the supply chain for efficiency and then preform a gap analysis to see how feasible it would be to the supply chain to mirror the ideal formation.
In most cases the ideal supply chain can never be fully justified. However, there is always room for improvement with a total quality management mindset. Thus, although it is hard to design a supply chain entirely from scratch, there is always room for incremental improvements. In the case of Euro Cast, management should examine the supply chain to see what capabilities in which it might have a competitive advantage in order to produce customized components internally, and what functions might be managed best from external partners. It is from this holistic perspective that real value can be derived…