Transforming global production networks
‘Production’ is a critical activity in the value network: it often represents the majority of a firm’s assets and embodies key differentiating capabilities. Many companies think about redesigning their production networks in order to reduce their costs. But a well-designed production network can do much more than save money, important though that is. Gaining access to the most attractive markets can be at least as important. It can also improve your access to key resources, your ability to innovate and to be more agile, and to manage risk more effectively. It is also the case that most global manufacturers do not design their footprint from scratch but inherit a network that has evolved over time and is often the product of several mergers and acquisitions. It is very unlikely, therefore, to be configured in a way that supports the company’s strategic objectives.
The IfM has a four-step approach to help companies ‘make the right things in the right places’ and continue to do so over time as conditions both inside and outside the business change.
Why does the company need to change from its current position? We explore this question to make sure the production network strategy is aligned with the overall business strategy and any technology trends.
What should the company make and what should it buy? What are the manufacturing capabilities it should invest in and what types of supply partners will it need?
Where should the company locate its manufacturing operations? And what roles should each of them adopt to ensure the whole exceeds the sum of its parts?
How should the company put the strategy into practice? And what new capabilities does it need to support the implementation?
"We are one of the world’s largest manufacturers, with sales approaching $50bn, and the main reason for starting this process was to secure the long-term optimisation of our production network. Over time the ‘burning platform’ has changed but the process remained the same, allowing us to constantly update the vision as conditions evolve. Since 2008 this approach has been used in all business divisions and services to guide our annual, multi-billion dollar capital spend through co-ordinated investments across the vertically integrated company."
Manager of Global Production Network Planning,
Construction Equipment Manufacturer
We have been working with companies on production network design for more than ten years and seen them benefit in a number of different ways.