Global Supply Chain Governance

For many of the interviewed companies, expansion of their production sites results in an increasing degree of globalization of their production capacities. In the medium term, the automotive supplier industry in particular, and – to a lesser extent – also the machinery and plant engineering sector, expect more widely-distributed production and greater global procurement: These industries will adjust their supply chains more strongly to the increased distribution.

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Globale-Governance-1In this context, GEXSO examines the participating companies’ governance mechanisms that help to control their growth and operational management. Initially, governance comprises of the existence and consistent implementation of a global corporate strategy, and also the derivation of specific local and regional targets in line with the global strategy. Furthermore, these targets have to be quantifiable and measurable. Measurable targets are a vital part of supply chain governance – equally as important as consistent implementation of standards for the process flow. A governance concept that comprises standards and guidelines also covers decision-making structures and escalation processes, as well as guidelines for conflicts that result from opposing objectives in the supply chain strategy (e.g. prioritization rules). The results show that supply chain strategy is a major focus for most companies: In 55 per cent of the participating companies the executive board or the management sector take direct responsibility for the supply chain organization.

Globale-Governance-254 per cent of the companies state that they pursue a global supply chain strategy. However, on a global level, this only applies partially to approximately a third of the companies. Approximately 12 per cent do not pursue a global strategy or only attempts of a global strategy. Qualitative analysis of the companies shows that their average degree of globalization is relatively small, and that a global strategy relative to the reference group does not seem necessary. However, globalization degree and strategy do not correlate. Therefore, some companies have a relatively small globalization degree but still pursue a global supply chain strategy.

Companies regard consistent global implementation of the supply chain strategy with skepticism. Only 44 per cent confirm that they consistently implement their supply chain strategy, and for approximately 37 per cent this applies only with limitations. More than 18 per cent consider their implementation to have been delivered only partially or not at all. Regarding local targets and their deviation from global strategies, there is a similar picture: Approximately 57 per cent state that consistent aims exist for their international units, but for almost 29 per cent this is only partially realized. Over 14 per cent see little or no relationship between their global strategy and their regional goals.

Globale-Governance-3These figures are noteworthy with regard to the significant growth of supply chain resources in various world regions as described above. A global strategy is in fact defined, implemented and transferred into local targets by a majority of the companies. However, it is implemented only partially or inconsistently in about one third of the companies. Given the continuous dynamics in the process of globalization of the examined industries, these numbers indicate that there are deficits in the organization of the growth process. These findings are underpinned by an analysis of the measurement of supply chain performance according to defined aims and across locations, which we conducted in the majority of the companies.

Globale-Governance-4However, only 42 per cent of the companies were able to implement these measurements partially or not at all. The same applies to another governance instrument: The majority of the companies have defined global process standards. However, in approximately one quarter of the companies, these are only defined partially, and for 16 per cent of the companies they play only a marginal role or no role at all. Regarding their supply chain governance concepts, nearly a quarter of the companies stated that they have no or only isolated standards and guidelines. Another third only have partial concepts or definitions. Decision-making and escalation structures – a considerable part of the governance concept – are barely regulated or not controlled at all in 40 per cent of the companies, and only partially defined in a fifth of the companies. 40 per cent have clearly defined decision-making and escalation mechanisms. Additionally, we asked about policies for controlling conflicting targets. Only 18 per cent of the companies have defined such rules, they are partially existent in a third of the companies, and almost 49 per cent of the participants use such guidelines rudimentarily or not at all.

Summary

Compared to the leading group, in many companies there is still room for improvement in the governance of their global supply chain. While numerous companies recognize the importance of a global supply chain strategy that operates according to KPI concepts and target values, and have implemented corresponding governance instruments, there is still need for improvement in many of the companies. The majority of the companies also still need to improve their management of target conflicts through governance guidelines. When asked about already-implemented guidelines for the control of target conflicts, the participants most frequently mentioned the management of service degree vs. supply chain costs (15 times) and the management of competing demands from different countries (13 times); competing demands of different types of businesses or business units were only mentioned half as often (multiple answers possible).

The fact that conflicts between countries were mentioned so often underpins the complexity of internationalization, and the apparent need for action within companies that not only have to manage the classic area of conflict ‘cost vs. service’ but also ‘international counterparts’. Analysis of different areas of responsibility in supply chain governance indicates that areas most commonly delegated are responsibility for operational supply chain parameters such as stock, delivery reliability and processing time to local supply chain managers. Global supply chain managers mostly organize processes, while reference data and production capacities are generally managed through local and global supply chain functions. Regional supply chain managers only play a marginal role and were not statistically significant in the responses provided.


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Successfully leading within a global production network – experiences of European industrial companies during the globalization of their supply chain.

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