International, ‘blue chip’, corporations have manufacturing and service facilities at multiple sites, often across several countries or even continents. They operate globally and expect their suppliers to do the same.
That means they expect not just the identical products to be available in their facilities world-wide: they expect them to be sourced, obtained, delivered, and paid for through the same business and commercial processes, regardless of where in the world the requirement arises. The same quality levels; the same service levels. In the previous blog from my colleague Victor Roos, Professor Koen Vandenbempt of Antwerp Management School was quoted as saying that “customers see ‘value’ not just as a matter of meeting their technical needs and price points, but in finding a good fit with their business processes and strategies”. This is a prime example.
But it is also a big call for a supplier, especially in the area of tail spend, where thousands of line items may be sourced from hundreds of manufacturers. Some of those manufacturers may themselves have a global presence, but others may not be active outside their own country, or even their local region.
There are those who believe that globalisation is about to go into reverse, but I don’t really see this. It may well be that trade ‘frictions’ are increasing, but in my view this makes it even more important for international companies to establish a significant local presence in their overseas markets, not just in establishing local manufacturing and other facilities but in local sourcing and procurement. In turn, I believe that companies in supporting roles will also need to operate locally. MAG45 does so thanks to its ‘hub’ structure and ability to roll out or develop reliable supply chains very quickly, tailored to customer needs.
Large or small?
MAG45’s hubs vary immensely, in the sense that they may range from a handful of staff in a rented office to a fully-fledged and competent warehousing and distribution operation with 25 or more employees. Why you are probably wondering?
As in all the best business strategies, it’s because it is good for the customer, and good for MAG45. When we set up a hub in a new region to serve a particular customer, it’s not just a matter of putting a brass plate on the door. It’s about establishing a legal entity and setting up full local operations. If we have a hub, for example in Oregon - US, then there is a part of MAG45 that is for ever in Oregon.
Now, that doesn’t just make things easier for us and our client in Oregon. It means that we have a local presence with the many companies that may be suppliers to our other customers world-wide.
Managing competing challenges
I see two competing challenges. On the one hand, MAG45 needs to supply items from suppliers who are themselves global corporations. This means we need to be able to deal directly between, say, our hub in Germany and the country organisation of ‘Supplier X’ in Germany, or our hub in Singapore with Supplier X’s operation there, for a customer who has facilities in both locations. This ensures that the same parts can be made available on the same terms to our customer.
On the other hand, I know that many of the items we deal with are single sourced or proprietary items from relatively small, specialist suppliers who are not geared up to the complications of international trade. Why should they be? – most of their production goes to OEMs in their home countries quite easily, and an urgent request for spare parts to be delivered to a location half way across the globe is outside their scope. Freight forwarders, international shippers, customs and tariffs, may be firmly in the ‘too difficult’ box.
Achieving service excellence
I know that setting up a hub to serve just one customer or customer site can look like an inefficient use of resources. But having even a small-scale presence in a territory not only improves our service to that specific customer, but will also enable us to improve the service levels offered to many other customers around the globe.
Going back to how globalisation may be developing, I think it’s important that we don’t just parachute in staffing our hubs. We need to recruit and train local staff, in order to tap in to their knowledge of business relationships and customs, real transport and infrastructure performance levels, how the bureaucracies work and how to (legally) navigate them. And to do this at a level that wouldn’t be achievable by simply running things from head office or with purely European knowledge and experience. Although of course underlying business methods and practices have to be uniform around the world.
Establishing even small-scale hubs also creates an opportunity to gain business from other customers in that region, since we are already on the ground and up and running. And if the expansion requires to acquire warehousing and other operations, it is very quickly arranged. With hubs already operating in a standard way, the ERP and other systems look identical, for both the customer’s many global sites and our own internal systems. We can share, swap, reallocate stock; renegotiate terms with suppliers; and we can arrange shipping, freight forwarding and other international trade issues. All without the customer needing to know or worry.