2 management - School of International Business and ...

421 Production in the Global Environment – Analysis and Best Practices
ers can talk directly to other computers. To utilize these adavantages fully, which are available today
through Globalization, SCM is an absolute necessity, and most companies are investing into it today.
Assuming the product is designed in Germany, built in China with suppliers around the world and sold
in USA, and all of this with ongoing pressure for Time to Market, Cost and Quality, it is easily under-
standable why SCM is so important. So the factory today is part of an integrated supply chain, and not
isolated and doesn’t stand alone anymore. In the past many logistics theories and models have been
taught in the schools, like the Bullwip Effect [5], but with todays Advanced Planning Systems having
the actual inventory and free capacity overview of all involved processes, they are able to make the
best decision for the actual situation, avoiding any unnecessary inventory buildup.
Without going deeper into the capabilities and requirements of an integrated supply chain, I want to
pick only one example which gives the easiest and fastest return on investment: this is Procurement.
Since the vertical integration in production is reduced significantly over the years, most of the value of
a product comes from suppliers, the amount of money spent by the Chief Procurement Officer (CPO)
can be easily 50% of the total money spent in the company. Besides the challenges of integration
discussed earlier, every Euro saved in Procurement is net profit. Achieving the same profit through
production and sales is significantly more difficult. 5-10% savings are realistic numbers for most com-
panies doing a reengineering of their procurement process. IBM for example, being named best
procurement process in 1998, achieved a competitive advantage of 7%, and this over a procurement
volume of 43B$. Figure 9 shows the main changes, going from an individual buying process locally
(Maveric Buying), to a Strategic Sourcing, optimized globally. Typically the percent savings which are
achieved, are higher for indirect material, as compared to direct material. To realize these potential
savings, often the governance model must be adjusted, so using these central purchasing catalogs is
mandatory and not optional. Otherwise the saving potentials cannot be achieved fully.
Figure 9 | Reengineering from a local maverick buying into a globally optimized procurement network
Source: IBM/ABB