Network Design: Optimizing the Global Production Footprint

An optimized global production footprint can give a company a strategic edge by delivering long-term savings of around 20 percent of total landed costs.1 Savings can even exceed 40 percent for companies with a legacy of fragmented sites in high-wage countries. The globalization of a company’s production and sourcing also creates a platform for entry into new markets. However, planning and execution are still a feat — on average, the companies we surveyed had only achieved production cost reductions of 13 percent in recent relocations. To get the full benefit of global production, companies must adopt an integrated perspective that extends across the value chain and covers multiple input factors from labor costs and productivity, materials, energy, and logistics through to customs, taxes, and exchange rates. Changes to product design and process technology should also be explored. As these elements can dramatically alter the economics, companies also need a new quantitative approach that does justice to the many factors involved. Management should also take a fresh look at existing locations. Operational improvements, such as lean production methods, can make existing sites more competitive. These opportunities need to be weighed in order to compare sites fairly; they can also point the way to a more gradual transition to a new footprint and lower restructuring costs. A clear transition plan to the target structure needs to factor in the speed and sequence of migration to optimize net present value and return on investment. Companies have to be proactive to maintain their competitiveness. The challenge is to move from an incremental to an integrated approach folding production into a global operations and growth strategy that is able to react dynamically to market changes and is regularly reviewed by top management.