What is in this article?:
The challenge facing manufacturing executives? How do they position their firms in the "value chain" -- the entire series of activities that begins with the processing of raw materials and ends when a finished product is in the hands of the end user.
Many manufacturing executives can relate to Deere & Co.'s dilemma. The company's Worldwide Commercial & Consumer Equipment Div. (WC&CED), like many businesses today, has outsourced a significant portion of its production work.
In fact, at the division's Horicon (Wis.) Works, purchased parts represent fully 82% of the cost of goods sold. As a result, WC&CED -- which makes small tractors and commercial mowing equipment -- has grown increasingly dependent on its supplier base. Yet the suppliers' lack of flexibility and long leadtimes presented a problem when the division began to devise a strategy to more closely synchronize its production with seasonal demand, which peaks in April-June and drops off dramatically the rest of the year.
Deere's dilemma is indicative of a larger challenge facing manufacturing executives: How do they position their firms in the "value chain" -- the entire series of activities that begins with the processing of raw materials and ends when a finished product is in the hands of the end user?
Frequently, facing this challenge starts with an examination of the company's core competencies -- the things it does best in creating value for customers. And often the result, as in the case of Deere WC&CED, is to become less vertically integrated -- to outsource production or logistics or other functions.
However, outsourcing can result in loss of control over key capabilities, which, in turn, can affect a company's ability to introduce changes in response to shifts in the marketplace -- or simply to improve its efficiency in serving customers. Consequently, there has been a growing impetus to find ways to manage the "extended enterprise "-- to build collaborative relationships and improve both the flow of materials and information throughout the value-creating pipeline. o
The scope of the challenge extends beyond traditional supply-chain management, although that is a key element. For manufacturers, one distinction of the value chain is that it extends in both directions and encompasses trading partners ranging from the supplier's supplier to the customer's customer. Another is the increasing focus on working with trading partners to collectively increase speed, pare costs, and enhance the end customer's perception of value.
Shaping a strategy that reflects the reality of the downstream marketplace often leads to new approaches to upstream supplier management.