Globalcast Supply Chain Strategy: Reactive to Proactive

Supply Chain Trends and Their Implications for Globalcast

The trends outlined in the case have several implications for the way Globalcast does business. First, increased transparency and demands for a single global price mean that Globalcast will face shrinking margins. It will no longer be able to source from cheaper locations, apply a markup, and pass that cost on to the customer. The customers — which tend to be large companies with significant bargaining power and access to information — are now seeking the lowest 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 must recognize that its brand is not relevant to the end user, and therefore not truly relevant to its own customers either. 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 increasingly commoditized. The company will not be able to rely on its relationships with buyers to maintain business much further — it will need to compete on price. Both of these trends will exert downward pressure on Globalcast's margins.

The value profile that Globalcast currently holds relies heavily on these relationships. Major manufacturers are accustomed to using Globalcast to handle production and input sourcing, but increasingly they are doing it themselves. Larger customers in particular are positioned to cut Globalcast out of the equation altogether, should they choose to do so. Globalcast is now being asked to add value by sourcing from the lowest-cost countries, but without taking the large margins to which it has grown accustomed. This trend has serious implications for the structure of Globalcast's business. The relationship-based selling model — with in-country Globalcast representatives selling to in-country manufacturers — is no longer sustainable, as sourcing is increasingly conducted at the global level. Globalcast will need to streamline its operations considerably to continue meeting customer needs going forward. It will need to produce inputs at a lower price than customers can produce for themselves. The good news is that where multiple customers need similar inputs, Globalcast can leverage production economies of scale — but only with significant operational streamlining.

Furthermore, Globalcast needs to become far more flexible. At this point, the company should consider that it is no longer primarily in the input production business, but rather in the business of coordinating input sourcing, adding value through minor production enhancements, and delivering those inputs to clients. If it can develop a stronger global network to identify the lowest-cost suppliers worldwide, it will be positioned to offer something its large clients would rather not manage themselves. However, this will require a significant shift in Globalcast's business model, which is currently not oriented toward a global approach. Globalcast will need to restructure its operations to be far more flexible, as the needs of its customers are beginning to change at a more rapid pace.

To bring about these changes, Globalcast will in all likelihood need to adopt a more collaborative approach with its partners. In the past, Globalcast's business practice has been to sell to its customers rather than work with them. Several factors will drive the company toward an increasingly collaborative model. First, Globalcast needs much better demand forecasting to meet customer needs while simultaneously cutting its own costs. Obtaining that information from customers is the first step in this collaborative process.

The second step is that Globalcast will need to be more transparent with customers about its cost structures and work with them on shared requirements. Because it will no longer be able to extract the same margins, it must work with major clients to develop increasingly efficient logistics systems that create win-win outcomes. If it fails to do this, Globalcast will simply face ever-tightening margins that cause it to suffer while its customers 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 produced, it works with Globalcast during design to ensure that both parties' needs are met.

Capacity, Inventory Planning, and Supply Chain Design

Management of capacity and inventory planning will become increasingly important for Globalcast. The company currently uses production capacity in multiple countries to meet global client demands, and has historically benefited because the local Globalcast office adds its own markup in doing so. The problem going forward is that customers are now aware of this practice and are beginning to cut out the middleman entirely to reduce their own input costs. Globalcast must start thinking more like its customers and seek to reduce its own costs accordingly.

For capacity and inventory planning, this means planning at the global level rather than the national or regional level. One advantage of this approach is that Globalcast will itself achieve lower input costs by producing in the lowest-cost countries at greater scale. However, this will require significantly better demand forecasting than Globalcast currently has, because it will no longer be able to offload surplus production from one factory onto customers in another region. More likely, capacity will be consolidated into fewer, larger facilities. This requires superior capacity planning, superior demand forecasting, and a much deeper understanding of global shipping infrastructure. The company appears to have relied on a regional shipping approach; going forward, it will need a genuinely global one. Building this capability is essential, and the need is reinforced by tightening margins — as margins are squeezed by larger customers, efficiency becomes non-negotiable regardless of any other factor.

Ultimately, Globalcast's supply chain design will need to change. The company will need fewer facilities, which may need to be more specialized and more flexible. Factor costs such as raw materials, labor costs, and trade barriers can change over time, and Globalcast will need to respond to those changes more rapidly than in the past. Building a factory intended to supply the world for fifty years is not a viable model; greater flexibility on facility decisions is essential in case a country loses its competitive advantages more quickly than expected.

The location strategy must be based on meeting global needs rather than regional ones. This means willingness to eliminate much of the local and regional production the company currently maintains, and being nimble in making such decisions going forward.

The push-pull dynamic that Globalcast currently relies on will shift to a predominantly pull-based model. Globalcast will no longer be able to push excess production to other locations or sell locally at higher prices. Going forward, demand will drive production, and Globalcast must be capable of meeting that demand on a pull basis. Just-in-time inventory systems are likely to be required, so Globalcast must orient far more toward a pull strategy, with distribution nodes that do not carry their own production capacity.