Borderless manufacturing: Achieving growth through globalization

Today’s manufacturers face a wider range of challenges than ever before—most notably, greater, more varied competition and the complexities of a globally extended supply chain. At the same time, the opportunities for success have never been more far-reaching. There are over 7.2 billion people on the Earth. And because geographical borders seldom act as a boundary to sales, nearly everyone has the potential to become a customer.

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Borderless manufacturing: Achieving growth through globalization 2Today’s manufacturers face a wider range of challenges than ever before—most notably, greater, more varied competition and the complexities of a globally extended supply chain. At the same time, the opportunities for success have never been more far-reaching. There are over 7.2 billion people on the Earth. And because geographical borders seldom act as a boundary to sales, nearly everyone has the potential to become a customer. Just consider the changes happening around the globe and the effect they’re having on how goods are produced, distributed, and sold. Global supply chains allow manufacturers to reach potential customers worldwide Industrialized Western European nations capitalize on core manufacturing strengths to maintain dominance in critical vertical markets, like luxury automobiles. Booming growth among several South American countries sparks innovation as manufacturers develop new products to create differentiation and carve out market niches. Volatility in the Middle East and the growth of the middle class in Africa fuel fast-paced change and uncertainty, reshaping challenges and opportunities as a result. The Asia-Pacific region adds uncertainty to the global picture as social reform and public pressure begin to undo the long tradition of low-cost labor. Companies in the Western world engineer extended supply chains in order to effectively market their goods in European and Asian markets. 1.8 Billion of the total 7.2 Billion world population falls within middle class status today. The number is projected to reach 4.8 Billion by 2050 with the fastest growth coming between 2014 and 2020.1 Borderless manufacturing: Achieving growth through globalization 3Nothing stays the same— manufacturers must stay up to date It’s hard to keep pace with changing best practices and strategies for competing in a global economy. Staying current with rapidly evolving technology trends isn’t easy. But, it is essential if manufacturers are to succeed in today’s global market. In this eBook, we will examine the factors shaping the current manufacturing environment as they relate to: • Competing in a global marketplace • Defining the new global value chain • Seizing opportunities for growth • Meeting global demand with limited resources Then, we’ll take a look at how technology can help companies improve their operations and drive success on a global scale. According to Euler Hermes Economic outlook: • Regions like ASEAN-China, Africa, and Eastern Europe have seen their trade volumes more than quadruple in the last decade. • Intra-zone trade between nations in proximity has increased, with one country providing the center of gravity, such as the case of China and Thailand, or Russia and the Czech Republic. • East Asia is expected to continue to dominate in import growth over the next three years with Thailand leading the world with 14% growth. • Chinese growth in imports is expected to reach nearly 10.5%, driven by population growth, infrastructural development, positive wealth effects, and urbanization, and new demand.2 Borderless manufacturing: Achieving growth through globalization 81% TECHNOLOGICAL ADVANCES 60% SHIFTS IN ECONOMIC POWER Industrial manufacturing CEOs believe: will transform their businesses in the next five years 4The only market is global Competition is increasing in all segments of manufacturing. In all parts of the world. What’s behind the increased competition among today’s manufacturers? As the chart below illustrates, Gross Domestic Product (GDP) is on the upswing in many countries, which means more players are seriously competing for consumer dollars. Real GDP growth 2013 2014p Global (market exchange rates) 2.5 2.8 Global (PPP rates) 3.0 3.3 China 7.6 7.4 Australia 2.4 3.3 Ireland 0.2 3.1 Poland 1.6 3.1 United Kingdom 1.7 3.0 Turkey 4.0 2.6 United States 2.2 2.1 Germany 0.5 2.0 Japan 1.5 1.5 Spain -1.2 1.1 Industrialized nations, developing countries, and Western and Eastern blocks are courting potential customers with promises of innovative products, competitive prices, rich e-commerce experiences, free shipping, and custom configurations. It’s truly a buyer’s market. And as a result, manufacturers must now compete against not only established brand names, but also with the startups that operate out of a garage with a few thousand dollars in venture capital funding. Twenty-one nations more than doubled their GDPs in the first decade of the 21st century. All of these countries are located in developing markets.3 Borderless manufacturing: Achieving growth through globalization 21 nations doubled GDP 5Competing in a global marketplace So, how do today’s manufacturers tackle this broad challenge? There are a couple of key strategies organizations can employ to more effectively compete in multiple geographies. Minimizing costs through outsourcing Outsourcing has long been one of the tactics used by Western manufacturers to keep product prices low. Contracts for assembly and repetitive tasks are often sent to divisions or partners in countries with historically low wages, particularly Mexico and China. Using right-shoring for additional savings Labor reform and public outcry about unsafe working conditions have led to increased wages in China. With socially conscious consumers threatening boycotts and staging grassroots protests of companies that outsource labor to countries with poor working conditions, sending contracts to overseas partners may not be as attractive as it once was. As a result, manufacturers are being forced to re-examine their outsourcing strategies and embrace reshoring or right-shoring programs. Many organizations have found that moving assembly and distribution hubs closer to the consumer can provide greater savings than choosing locations based on the price of labor alone. When working to compete globally, the location of the manufacturing plant, sub-contractors, and distribution centers is now a critically important consideration—it directly impacts the price and speed of delivery to customers. Proximity to the consumer is now a vital ingredient of competitive differentiation. 37% of manufacturers with annual sales above $1 billion, and 48% with sales in excess of $10 billion, said they were planning or actively considering shifting production facilities from China to America.4 Borderless manufacturing: Achieving growth through globalization Plant location impacts speed of delivery, labor costs, logistics complexity, and customer satisfaction 6The Internet has brought the world as close as a mouse click. Online shopping and overnight shipping have changed the consumer marketplace and made it possible to easily market goods and services to a worldwide population. But, they’ve also served to significantly complicate the manufacturing process: Orchestrating a global value chain—from obtaining raw materials and manufacturing components to assembling, packaging, and delivering goods—is a critical part of any modern manufacturing strategy. This is far different from the golden age of manufacturing, when most operations took place within a single region. Supplier networks touch multiple points on the globeDistribute finished goods by rail, truck, or ship Land, space, and equipment are acquired by lease, with distribution hubs placed near concentrations of customers Then: Now: Purchase a large tract of land Factories are specialized, with each plant managing a specific product or production task Build a factory Workers are often hired on a contract basis, while many skilled roles, such engineering, are outsourced Hire full-time local employees Supplier contracts are significantly limited—some are as short as six months—due volatility in the price of raw materials Sign long-term agreements with regional suppliers and Partner with nearby contractors Defining the new global value chain Borderless manufacturing: Achieving growth through globalization 7Seizing opportunities for growth The global population is expanding—but it is also becoming more accessible. Countries that may have once been labelled remote and impossible to reach are now crisscrossed with highways, delivery systems, communication networks, and—of course— the Internet. In addition to being more accessible, the world population is also exhibiting greater purchasing power. The middle class is expanding in many countries, including nations that were once totally impoverished. More individuals in the middle class means more people armed with mobile devices. And anyone who owns a smartphone can become a major influencer on innovation, product strategies, or purchase decisions. The rise of the middle class in new areas promises to present manufacturers with a significant number of potential customers. The challenge, of course, is establishing a distribution channel and supply chain that can deliver the goods to remote regions where the transportation infrastructure may be lacking. Between 1980 and 2010, Africa’s middle class almost tripled in size—from 115 million to 327 million, or about a third of the continent’s population.5 Borderless manufacturing: Achieving growth through globalization 8Meeting global demand with limited resources Even as their operations become markedly more complicated, manufacturers are continually trying to do more with less, to stretch resources as far as possible before they snap. Fortunately, modern IT solutions can help manufacturers manage global operations with greater ease, confidence, and profitability. But successfully managing a worldwide supply chain made up of multiple contractors, suppliers, and distribution centers requires the right ERP solution. It demands a solution with complete, end-to-end visibility into everything from financials and scheduling to shop floor management, quality control, and analytics—so all aspects of the operation are transparent to key stakeholders. Moreover, the solution must be offered in a cloud consumption model. The ability to deliver the ERP functions organizations demand, without forcing them to invest precious resources in dedicated hardware and software, makes the cloud a key contributor to agile, responsive operations. Borderless manufacturing: Achieving growth through globalization “ Complete end-to-end visibility is essential—even when the supply chain stretches across continents and oceans.” It’s abundantly clear that manufacturers must compete in a globalized marketplace, orchestrate geographically dispersed supply chains, and identify and capitalize on new opportunities for growth. Modern, advanced ERP solutions are designed with globalization in mind. Today’s highly flexible solutions offer the deep functionality manufacturers need, along with the analytics, reporting, and end-to-end visibility required to manage a global enterprise. And, multi-site capabilities allow companies to support localization, while still maintaining an integrated global network. But what happens if an organization attempts to manage a global expansion without the appropriate IT infrastructure in place? 9 What it all means Borderless manufacturing: Achieving growth through globalization • Disparate systems and siloes of information can leave plants without access to corporate insights and strategies • Poor visibility into a global operation, especially the supply chain, can cause confusion about inventory, costs, and bottom-line profitability • No real-time insights into operational status can create workflow disruptions and lead to missed deadlines and unsatisfied customers • A lack of consistency and quality- control standards from location to location can jeopardize brand integrity • An inability to quickly establish operations in a developing country poised for explosive growth can hinder competitive advantage • Implementing a technology platform that is unable to respond to rapidly changing operational demands can slow agility and overtax already scarce resources Many of these issues can be avoided with the help of technology. Simply put: The right technology can make all the difference. So what qualities should manufacturers look for in an ERP solution? Risks A highly flexible IT infrastructure is an essential component of any contemporary manufacturing operation. And a modern ERP solution serves as the cornerstone by allowing an organization to manage the unique issues of its vertical industry, as well as both local and global business and financial concerns. Manufacturers need ERP solutions that are purpose-built to meet their specific operational demands—and well-suited to manage the shifting challenges of globalization. The table to the right details common challenges global manufacturers encounter and the ways the right ERP system can help to mitigate them. Challenge How technology helps Availability of raw materials Maintaining the proper inventory of raw materials continues to be a critical challenge for manufacturers, particularly in industries using materials that are scarce, restricted, or require specialized shipment or handling, such as anything perishable or hazardous. Inventory management Warehouse management, procurement, and supply- chain tools integrate to create a single global view of current inventory availability and future needs. Visibility across the supply chain can mitigate the risk of unexpected interruptions to availability, ensuring the right products are in the right place at the right time. Collaborative tools, online portals, and advanced analytics make it easier to monitor and maintain appropriate levels of inventory. Regulatory compliance No matter where a plant is located, local and international regulations are always going to be a core consideration. Tracking, reporting, and managing compliance programs can be complex and time consuming. But the fines for violations for a misstep can be costly. Escalation alerts Modern ERP solutions contain integrated quality-control systems and use escalation alerts to help improve compliance with strict standards and performance requirements. Reporting tools can make it easier to monitor compliance, while automatic alerts and triggers can provide fair warning of any non-compliance events. Global or local Nationalism or cultural preferences can push customers to seek a local flavor of the global product. Made to order, engineered to order, and configured versions of products may be expected in some regions where a distinct style is preferred. Likewise, labels, packaging, and consumer directions and warnings may have to change to reflect different languages or regional laws. Flexibility Today’s ERP solutions and product configuration tools help manufacturers meet customer expectations for product specialization. These solutions can manage small runs, short product cycles, and mass customization, as well as traditional make-to-stock production orders. In addition, advanced warehouse solutions enable manufacturers to manage multiple SKUs of packaging, labels, and pick-and-pack rules. 10 How technology helps Borderless manufacturing: Achieving growth through globalization Challenge How technology helps Multiple languages, currencies, and tax laws Manufacturers in today’s global marketplace must be flexible enough to operate in numerous languages, do business in multiple currencies, and uphold the unique tax laws of several different countries. Multi-location support It is absolutely essential for an ERP solution to include the capability to manage multiple sites, languages, and currencies. And, the solution must also be supported by a provider with global expertise and customers in the target market, so manufacturers can benefit from the provider’s experience and proven success. Quality control and consistency Consistency and quality control become even more important as manufacturers extend their operations to several locations. Customers expect the same level of performance, no matter where the product is made. Variations can put the integrity of the brand at risk. Product specifications Contemporary ERP solutions have closed-loop quality- control systems that can measure final performance against engineered parameters. They also feature built-in checks and balances that can better manage consistency throughout the manufacturing process. Risk Global operations naturally involve some degree of risk, as plants move into regions where social and political volatility can threaten stability, security, or the continuity of the supply chain. As a result, manufacturers must be able to react quickly to new security concerns or threats to employees and executives in unstable areas. Agility of cloud solutions ERP solutions that feature cloud deployment options give manufacturers the ultimate in flexibility and agility. Because there is no need for hardware, servers, systems to manage security, or extensive IT support, setting up in a new location—or relocating when there is a risk—can happen quickly and easily. This provides the flexibility to move nearer to consumers or relocate as needed to take advantage of changing opportunities or avoid hazardous conditions. 11 When all of these capabilities are delivered in a single solution, manufacturers will find it much easier to enter new markets with confidence. And succeed in them. Cloud-based applications represent 22% of all manufacturing and distribution software installed today, and are projected grow to 45% in the next ten years. How technology helps (continued) Borderless manufacturing: Achieving growth through globalization ! About Infor Infor is fundamentally changing the way information is published and consumed in the enterprise,helping 73,000 customers in more than 200 countries and territories improve operations, drive growth, and quickly adapt to changes in business demands. To learn more about Infor, please visit References 1Kharas, Homi. OECD Development Center. Working Paper No. 285. The Emerging Middle Class in Developing Countries. Global Development Outlook. 2Euler Hermes Economic Research Department. No. 1187. The Reindustrialization of the United States. Economic Outlook. 3Deloitte University Press. “Business Trends 2014: Navigating the Next Wave of Globalization.” 2014. 4The Economist. “Reshoring Manufacturing: Coming Home.” January 19, 2013. 5The Globalist. “9 Facts: Africa’s Middle Class”. August 6, 2014 Disclaimer This document reflects the direction Infor may take with regard to the specific product(s) described in this document, all of which is subject to change by Infor in its sole discretion, with or without notice to you. This document in not a commitment to you in any way and you should not rely on this document or any of its content in making any decision. Infor is not committing to develop or deliver any specified enhancement, upgrade, product, or functionality, even if such is described in this document. Copyright © 2014 Infor. All rights reserved. The work and design marks set forth herein are trademarks and/or registered trademarks of Infor and/or related affiliates and subsidiaries. All other trademarks listed herein are the property of their respective owners. #INFDTP1452296-en-US-1114-1