Cracking Emerging Markets, Part 3: Room for Growth
Nick Ostdick - September 15, 2016
In the previous entry in this series, we discussed the tools, solutions, and strategies necessary for OEMs to not only establish themselves in emerging markets but also succeed based on predefined benchmarks or metrics. We discussed the importance of E2E visibility and the methods manufacturers must deploy in order to gain as much control as possible over their supply network - including intelligent demand planning, accurate forecasting, and detailed analytics and reporting.
Today’s entry, our third and final part of this series, will focus on best practices for OEMs to ensure sustainable, long-term growth and prosperity in this new and emerging markets. We’ll discuss a handful of considerations planners and managers must take into account as they attempt to cut through the complexity of incorporating a new market into an existing global supply stream.
We’ve discussed in previous entries best practices for global supply chain management in an established market, but what elements are in play in these new markets? For OEMs looking at long-term sustainability with new production hubs and facilities, what are the risks and how can OEM’s mitigate these risks to drive profitability and ROI in the mid and long-term future?
In some ways, the answers to these questions are similar to a roll of the dice in that each manufacturer and market is so specific it’s difficult to prescribe a holistic strategy that addresses all the possible factors. Because the automotive manufacturing sector is such a variant-rich industry, one-size-fits-all solutions are often times more problematic than helpful. That being said, there are a few overarching principles companies should deploy in establishing a foothold in emerging markets and creating room enough to grow.
Develop & Define Supplier Networks
As manufacturers establish themselves in new and emerging markets, they will - and should - naturally gravitate toward a more localized model of sourcing materials and supply partnerships to help drive down costs and increase efficiency, visibility, and flexibility across each touch point of the value chain. As a result of this shift to a more local model, OEMs will have to evaluate overall production quality and efficiency, which in part starts by developing and defining new and existing supplier networks.
This is perhaps one of the great challenges for OEMs working in emerging markets, but it’s also one of the most critical drivers in fostering a cost-effective and highly-efficient production network. Because existing suppliers can already be strained with attempting to service already established markets, OEMs in emerging markets may suffer unless they reevaluate their supplier needs and networks at the local level.
In order to develop, define, and drive supplier relationships at the local and regional level, manufacturers should consider the following paths forward.
- Push for existing suppliers to establish networks or even physical hubs via third-party partnerships in closer proximity to emerging markets to better facilitate demand and ensure a fluidity of supply.
- Identify and establish relationships with existing local and regional suppliers capable of providing products and services at the levels and quantities necessary for OEMs to continue production programs as needed to fill orders and ensure on-time delivery.
- Encourage larger suppliers to partner with local or regional companies for increased efficiency based on local knowledge and insight into the subtleties of production, transportation, and warehousing at the local level.
While these considerations may seem like disparate ideas, OEMs will more than likely have to deploy some combination of all three in order to hit optimal planned productions and ensure a functional supply stream. Adopting a mix of these supplier strategies is both essential and a value-added proposition as manufacturers create a production footprint in their new markets.
Much has been said about the importance of lean manufacturing principles in global supply chain management and the benefits such principles provide companies. Nowhere is this brand of thinking more beneficial than in emerging markets where E2E visibility, flexibility, and transparency are key drivers in fostering an agile, responsive production and supply stream. A recent Gartner survey on emerging markets found more than half of the respondents said they view globalized supply chains as being more brittle and complex. This is exacerbated by the fact that more than 93 percent of U.S. manufacturers in the survey reported they do not have complete supplier visibility on a global level.
For companies looking to establish long-term production and supply operations in emerging markets, these can be troubling numbers. That’s why companies must deploy intelligent demand planning solutions and integrated production strategies to help cut the complexity and uncertainty of working in new regions of the world.
As we mentioned, complete E2E visibility should be the top priority for planners and managers. Real-time supply chain visibility can help OEMs in increased speed to market while reducing capital expenses and mitigating risk of bottlenecks and disruptions. As such, production strategies such as Just-in-Time production, BOM management (particularly BOM explosion where nuances of planned production are made clear for proper facility and part allocation), and Plan for Every Part (PFEP) should be core drivers in a company’s production platform. On the technology side, sequencing solutions, order-slotting software, and production control systems are critical touch points companies must address to create a streamlined production network, along with powerful computing tools for transportation and freight management.
Companies that fail to develop and incorporate these strategies and technologies can not only find themselves struggling to maintain a consistent, efficient production program in their new market, but they can also see ripple effects of these deficiencies on a global scale.
Adapt to Local
Adapting to the local flavor and culture of a new or emerging market goes beyond developing and defining supplier networks as we discussed earlier in this entry - rather, adapting to the local concerns consists of more or less reimagining how a manufacturer conducts operations given the landscape of a particular region. Taxations, production restrictions, labor costs and availability, and the geography of an area are elements OEMs in emerging markets must acclimate to and consider as they develop plans and strategies for long-term operations.
For example, let’s look at rail infrastructure in Mexico, a country that has been designated by many in the automotive industry as the next big emerging market for manufacturers. While the country is making strides in revamping and modernizing their existing rail lines, many have fallen into a state of disrepair and disuse, which makes it difficult for OEMs to create and deploy transportation strategies based on rail. This has forced many manufacturers to consider the costs, liabilities, and benefits of chassis freight, which comes with it’s own set of complexities.
Proactive companies that account for variables like these and develop supply and production platforms that work around obstacles and adapt to local quirks will be well-positioned for long-term growth and success compared with companies who attempt to leverage a one-size-fits-all strategy.