Transcript Document 7322075

Knowledge Economy Forum IV
Logistics and Integration into Global
Supply Networks
Global Industrial Context
Prof. M.J. Gregory
Institute for Manufacturing
Overview
• Industrial ideas
• Global context
• Emerging capabilities
• Working in networks
• Implications
Industrial Ideas
• Products – ARM – Microcircuit design
• Production – Zara – Fashionable clothes
• Distribution – Dell – Personal computers
• Services – Rolls-Royce – Aero-engines
ARM – microchips
marketing>design>production>distribution>service
• ARM designs used in 75%of
mobile phones
• Close to global customers and
OEMs
• ‘Fabless’ business model
• Substantial process
knowledge
Zara - clothes
marketing>design>production>distribution>service
• Spanish clothes maker Zara
owns all production capability
• Products in own shops change
every 2 weeks
• Production can be flexed to
respond to demand
• Competitors can’t follow!
Dell – personal computers
marketing>design>production>distribution>service
• Dell pioneered large scale direct
selling.
• Their model allows on-line
customisation of products
• Production and delivery status can
be tracked by the customer
• On-line diagnostics and after sales
service minimise support costs
Rolls-Royce – Aeroengines
marketing>design>production>distribution>service
• Responding to customer needs
• Rapid growth in market share
• ‘Totalcare’ service model ~60%
of revenues
• Implications for design and
production
Innovation, Value Chain & Business Models
Innovation can occur within and between each
stage along the value chain
Marketing>Design>Production>Distribution>Service
but the stages often have different ‘owners’ and the
interfaces and interdependencies between them are
often poorly understood.
…and the context is changing rapidly
• Global demand for products is rising
• ‘Disintegration’ of stages in some value chains
• Value-adding opportunities at each stage
BUT
• Globalisation is changing industry configurations
• Industrial capabilities are evolving rapidly
USA – they say…
• Growing economy
• Strong in research and
some production
• Emphasis on education
BUT
• Falling share of
production
• Economic imbalances
Europe – they say…
• Increasingly ‘high-tech’
• Spectrum of large and
small businesses
• Good global connections
BUT
• Some countries thought
to be inflexible
• Intense competition
Japan – they say…
• Continuing strength in
production
• Capable global networks
• New investments in
local production
BUT
• Ageing population
• Rigid structures
India – they say…
• Growing capability in
software
• Highly educated population
• Growing interest in
manufacturing
BUT
• Infrastructure limited
• Production has not been a
priority
China – they say…
• Growing production
scale and capability
• Dominant position in
some products
• Growing R&D
• BUT
• Imbalance between
production and services
• Shortages of energy
Globalisation – the case of China
• China is emerging as an industrial powerhouse
• It has received massive inward investment
• Industrial development has been systematic
• ‘High-tech’ capabilities are increasing rapidly
• Growth impacts global industrial structures
Growth
Average annual growth rate was more
than 10% between 1980 and 2004
14000
12000
10000
8000
6000
4000
2000
0
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002
Source: Chinese National Statistics Annual Report (2005)
Foreign Direct Investment
Billion US Dollars
70
60
50
Total FDI
40
30
20
10
0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Source: http://www.china.org.cn
New Workshop of the World
- Pearl River Delta
• 70% of the world’s
photocopiers
• 60% of the world’s
microwaves
• 160,000 people in
single factory for
running shoes
New Workshop of the World
- Yangtse River Delta
• 30% of the world’s ties
• 70% of the world’s
lighters
• fastest growing car
production location
Domestic appliances - Galanz
• Largest microwave
oven production base
in the world
• Annual production
capacity of 15 million
units 11,000 employees.
• Turnover $700m
• 70% of China market,
• 40% of global market.
Clothing - Meters/Bonwe
• Virtual company in Garment
Industry
• Grown dramatically from a
shop into a regional brand
and into the leading national
brand
• Over 1000 retail outlets in
China
• Sales of US$250 million in
2003.
So how do they do it?
• Cheap labour
• Foreign Direct Investment
• Natural resources
But also
• Systematic development of infrastructure
• Strategic development of industries
• Increasing focus on innovation and service!
So what are the underlying patterns?
• Attraction of ‘service-oriented’ business models
• Networks a source of innovation*
• Competition increasingly between networks rather
than firms
• Increasing role of ‘contract’ production!*
...all of which require new skills and capabilities
Networked Innovation – P&G
• Entrepreneur spotted a
rotating sweet!!
• Healthcare professionals
designed the product
• Production outsourced
• Leading P&G brand Crest
distributes.
Contract Production - Hon-Hai
marketing>design>production>distribution>service
• Global electronics production
capability
• Developed strongly from
component production
• Value capture through economies
of scale and flexibility
• Moving to design and service
..and is extending its scope
For example Hon-Hai’s strategy reads:
• ‘Focus on global logistic capabilities …’
• ‘Expand production capacity …’
• ‘Achieve further vertical integration …’
• ‘Maintain technologically advanced and flexible
production capabilities…’
‘… will leverage off its manufacturing expertise
and continue to move tirelessly into new areas of
related business’
and as for brand…
• We have no brand
• but, our quality is the
“brand”
• our technology is the
“brand”
• our people are the
“brand”
..and then the ODMs…
Original Design and Manufacturing businesses
• Execute the whole manufacturing cycle
• Ask you (the brand owner) if you would like some
• Sell the surplus under their own brand and
• Develop proprietary design, product and process
technologies!
QCI - Quanta computer Inc.
Established - May 1988
Market Cap - US$7B
Revenue (04) - US$ 10.14B
Employees - 25,000
Strong and diverse customer base
Modern manufacturing involves
“The full cycle from understanding markets
through R&D, product design, production, supply
and services within an economic and social
context”
and is increasingly
Global, Connected, Multi- partner, Multi-business
B&Q China
• B&Q is the leading DIY chain in
China
• It commissions designs,
outsources production,
distributes, sells and services
• These activities are orchestrated
from the UK
Implications for emerging economies
Need to
• Understand the ‘maps’, capabilities and
trajectories of key industries
• Identify points of entry – potentially via major
multinational businesses
• Anticipate local demand and changing global
context
which needs need a better understanding of
• Value creation and appropriation – which requires
knowing what it is and how it can be captured
• Partner identification and evaluation - which
requires sophisticated ‘due-diligence’
• Production ramp-up - which requires sophisticated
technical capabilities
• Management of dynamic relationships - while making
sure they don’t eat your lunch!
Conclusions
• The structures and dynamics of global industries
are changing rapidly
• Product supply chains rapidly evolving to
networks of knowledge and services
• Many opportunities to access global networks
BUT
• Visibility of capabilities & trajectories essential
• Product-service systems an emerging theme