Managing Supply Chains in High-Growth Environments
by Gaurang Pandya and Venky Nayar
Emerging markets in the Asia-Pacific region—including
China, India and Southeast Asia—have become a key
driver of the global economy. Already representing some
of the world’s largest markets, China and India—each
with populations over 1 billion—average annual economic
growth of more than 10 percent. By 2030, China is
projected to be the single largest market in the world,
with India the third-largest.
While companies in the United States and Europe
have certainly recognized the value of these Asia-Pacific
countries for cost-effective outsourcing—with China
known for manufacturing and India primarily for services—
only a few Western businesses have achieved any success
in capturing the potential of these markets.
As the rapid growth of these countries’ economies
continues, an increasing number of Western manufacturers
have begun to view the Asia-Pacific region not simply as
a supply source, but as a growing demand center. Many
Western businesses have engaged in mergers or acquisitions
that have served the dual purpose of gaining a foothold in
Asia-Pacific, while also managing the competitive threat
posed by Asia-Pacific manufacturers who are exploring
the global marketplace themselves.
Whatever strategy Western manufacturers employ,
entering these expanding markets brings unique challenges.
In many ways, the Asia-Pacific region represents an
entirely different world—with its own business rules,
government regulations, transportation and logistics
challenges and a consumer population that is far more
fragmented and diverse than in either the United States
or Europe.
In addition, the Asia-Pacific region has not historically
placed an emphasis on end-to-end supply chain management.
Concepts that have been widely embraced in more
mature markets—such as integration across functions,
demand-driven supply models and visibility across the
end-to-end value chain—have not been broadly introduced
in this region. And, while technology solutions
may exist in some facilities that serve as suppliers to
Western businesses, they are primarily focused on simple
cost minimization. Even if the most sophisticated technologies
were deployed within Asia-Pacific businesses
today, they would be unable to deliver meaningful results
until core supply chain philosophies are more widely
adopted.
As a result, capitalizing on the huge potential of Asia-
Pacific markets will require a significant effort on the part
of Western businesses. But that effort comes with an
opportunity for dramatic growth in both revenues and
profits. The first step is gaining a clearer insight into
these emerging markets.
Understanding the Asia-Pacific opportunity
One of the single-biggest deterrents for businesses
entering the Asia-Pacific marketplace is the high cost of
operating a supply chain there.
Some of the region’s challenges, including its overwhelmed
transportation and logistics infrastructure, are
being addressed. Recognizing that an outdated and insufficient
infrastructure represents a barrier to economic
growth, many Asia-Pacific countries are investing in
improved air transportation, seaports, railways and highways.
However, manufacturers accustomed to the sleeker
transportation systems—as well as lower logistics and
distribution costs—in the United States and Europe will
experience a certain degree of culture shock, at least in
the short term.
Western manufacturers will also see a significant difference
in service costs. Markets in the United States and
Europe are relatively homogeneous, keeping service costs
down, but populous Asia-Pacific countries are extremely
diverse in language, culture, income level and product
needs. To compete successfully in these countries, much
higher levels of service and personalization are required to
deliver the customized products that address extremely
heterogeneous market segments.
An additional challenge is identifying local supply
networks in the Asia-Pacific region and successfully
integrating these companies into the end-to-end supply
chain. Many Western manufacturers already partner with
Asia-Pacific suppliers, but there are still language, technology
and cultural obstacles to overcome, as well as a
lack of the industry standards, protocols and business
metrics that are common in the United States and Europe.
There is certainly an opportunity to gain significant
sales revenues by competing in Asia-Pacific markets; the
key is to control costs and ensure profitable growth. It is
imperative that manufacturers understand and address the
supply chain challenges involved, as well as balance their
domestic demand with the often enormous potential of
the Asia-Pacific region.
Fortunately, some pioneering businesses have already
taken the bold step of entering high-growth international
markets, paving the way for other manufacturers. By
studying the successes and failures of these risk-taking
companies, manufacturers in the United States and Europe
can maximize their own opportunities for growth and
profitability as they prepare to compete in the promising
Asia-Pacific marketplace.
Five keys for success
The Asia-Pacific region offers its own unique challenges,
but it is not the first fast-growing market that has represented
a target for international expansion. Based on its
experience in helping manufacturers successfully adapt
their supply chains to high-growth global opportunities,
i2 has defined five key steps for succeeding in a rapidly
expanding marketplace.
1. Put the right organizational structure and
talent in place. The Asia-Pacific region, like many fastgrowing
markets, has not historically placed an emphasis
on broad, end-to-end supply chain management. Instead,
companies have focused more narrowly on individual
transactions, and the daily operational demands of keeping
pace with an explosively growing marketplace. For this
reason, manufacturers must create a local organizational
structure that emphasizes the importance of supply chain
management. In nearly every instance, a vice president of
supply chain must be appointed, along with an associated
staff. This new function should report to the chief financial
officer, the chief operating officer or the head of the business.
This will help the supply chain—historically viewed as a
cost center—to be seen as a well-managed profit center,
with clearly defined performance metrics and servicelevel
agreements with other functions.
In addition to establishing the right organizational
structure, businesses entering high-growth markets need
to focus on attracting, developing and retaining the
personnel required to manage a complex, diverse and
fast-moving supply chain. In many growing markets,
employees drawn from the local community might have
a better understanding of regional business practices or
government regulations, as well as personal relationships
that may be leveraged for the good of the organization.
But it is equally important to source talent globally to
ensure that processes and knowledge can be transferred
across all parts of the worldwide business—and that the
best employees will remain with the business over the
long term, supporting worldwide growth.
2. Match the supply chain design to the global
opportunity. Every manufacturer faces a difficult transition
when changing from a single-site business serving domestic
markets to a truly global business—with multiple manufacturing
locations, a variety of transportation modes,
diverse cost structures and highly differentiated markets.
Decisions about where to source materials, where to
manufacture and where to sell products are suddenly much
more complex. Careful consideration must be given to risk
management strategies, and to weighing the service and
margin implications of various market results—so that
supply chain strategies are “stress tested” before being put
into practice. (See risk articles on pages 36 and 39.)
It may seem logical to match the overall supply chain
design to what is perceived as the largest opportunity in
the new market—for example, by building new factories
in India or China. However, businesses must consider
the demands of the global marketplace to ensure that all
market opportunities will be leveraged. This means first
gaining an understanding of the costs and drivers associated
with every global supply chain activity, from sourcing
through distribution. Manufacturing facilities should be
located where they can maximize their contribution to
profitability, whether that means being close to raw-material sources, taking advantage of low-cost labor or becoming
part of the consumer communities they will serve.
Manufacturers also need to understand the diversity
of consumer needs in fast-growing markets, such as the
Asia-Pacific region, to make intelligent decisions about
which promising segments to focus on, as well as which
challenging segments to avoid. There is a natural focus
on China and India in particular—each of which is quite
diverse—but manufacturers must also consider smaller,
up-and-coming markets such as Vietnam.
3. Balance global and distributed planning. One key difference between Western businesses and
Asia-Pacific companies lies in the degree of centralized
control that has traditionally been exerted across the endto-
end supply chain. Manufacturers in the United States
and Europe are accustomed to tightly controlling all business
processes and supply chain partners; however, this philosophy
is not always embraced in international markets.
Even though local supply chain organizations need flexibility
and autonomy to succeed, manufacturers need
to balance this with global control. A certain degree of
centralized control ensures that the worldwide business is
operating under a single strategy, that key lessons and
knowledge are broadly shared, that common metrics are
applied and that there is no unnecessary duplication of
resources or business processes.
Ultimately, there is no universal answer. Each manufacturer
must work to achieve the correct balance between
global control and regional autonomy that is largely
dependent upon the culture of the country in which manufacturers
are doing business. In weighing centralized
versus localized planning, executives must also consider
such factors as the corporate culture, the impact on
strategic objectives, customer service implications, the
impact on costs and profits and the efficiency and effectiveness
of decision-making processes.
Even if they choose to empower their international
business units, manufacturers must still create and manage
a global business planning process—including sales and
operations planning—that aligns and synchronizes
regional metrics with corporate goals.
4. Understand and shape consumer demand. Entering a fast-growing market, especially one as diverse
as the Asia-Pacific region, requires manufacturers to
develop a systematic way to gather information about consumer
needs and then apply this information to their most
important supply chain decisions. Manufacturers need to
ensure that they are offering the right products, at the
right price, at the right time, to the right consumer groups.
This is a basic tenet for any business, but it is especially
true when a manufacturer enters a new international
marketplace, in which little may be understood about the
real-world needs and purchasing values of end users.
Once products are launched into the market, demand
shaping—which is commonly associated with the retail
environment—emerges as a critical concept in all consumer
markets. By linking key business processes to point-of-sale
information, manufacturers can make intelligent decisions
about markdowns that protect their profit margins while
also ensuring a steady stream of revenue. In a diverse,
heterogeneous market, demand shaping should be done
at a very granular level, to maximize profitability across
every market segment.
5. Manage transitions with flexible tools. Manufacturers typically arrive in a new international
market ready to apply the tools, processes and strategies
that have proven successful in their domestic businesses.
But, in addition to language and cultural obstacles, they
often encounter local supply chain partners with technology
platforms that are outdated and underutilized, as
well as business processes that will not easily mesh with
their existing operations.
A flexible technology architecture that overlays existing
systems is critical in enabling manufacturers to manage
transitions and business changes, facilitate rapid technology
deployment and adoption, integrate many individual
processes and platforms, and reduce the total cost of
ownership. Disparate operations data, legacy systems and
technology platforms, can be unified by implementing a
service-oriented architecture that allows a high level of
visibility and collaboration across international partners.
A flexible technology architecture can not only enable
current business processes, but also ensure that processes
can change as rapidly as the business changes. 
A success story
These five keys for success can best be illustrated by
describing how one consumer goods manufacturer used
these strategies to successfully enter not just one, but
multiple fast-growing global markets—where today the
company holds a significant leadership position.
In the mid-1990s, this manufacturer was primarily
known as a regional supplier of product parts and components
to larger companies, before it embarked on an
ambitious strategy of entering fast-growing markets under
its own brand name. In doing so, the company implemented
each of the five steps described above, including creating
a series of regional business units that placed an emphasis
on supply chain excellence. It devoted a significant percentage
of supply chain employees to ongoing improvement
initiatives. The manufacturer also recruited heavily
in each new market, combining local talent with experts
from its domestic operations to create a staff that is customtailored
to regional needs.
While each regional business unit operates with a high
degree of flexibility, the business has established a global
center that ensures visibility and integration across the
worldwide supply chain. The business has installed a set
of best-practice systems and processes that ensure the
speed, efficiency and consistent high quality needed to
serve fast-growing markets located in different corners of
the world. There is also a global process innovation team
that ensures objective performance monitoring, measurement
and continuous innovation throughout the company’s
facilities to ensure that performance remains at peak levels.
A service-oriented technology architecture supports
this global collaboration, enabling geographically diverse
business units to leverage one another’s strengths, as well
as participate in global production and distribution plans
that consider the capacity and cost constraints of every
plant. Customer needs can be met by a number of plants,
depending on the current state of local market demand,
production capacity and work-in-process inventory at
each of the company’s regional facilities.
Sales, manufacturing and transportation plans are
synchronized daily, and the flexible, multi-platform technology
architecture addresses inputs from such diverse
functions as marketing, forecasting, research and development
and procurement. No matter where in the world
employees are located, they share a single view of end-toend
supply chain activities, as well as a common perspective
on the key issues and opportunities facing the business.
As a result of its aggressive efforts to enter and dominate
high-growth markets around the world, this manufacturer
today holds a global leadership position in eight key product
categories. This once little-known supplier to domestic
industry is now recognized by major retailers and business
publications as a world leader in its product categories.
Now that it has reached a position of market leadership,
the company is making a strategic move from being
a supply-driven business to implementing a demanddriven
supply chain model. i2 is currently working with
the company to focus on closer customer collaboration,
greater end-user knowledge, more accurate forecasting
and more effective demand shaping to drive even greater
revenues and profits.
Maximizing your investment in growth markets
Not every business can expect to realize this kind of
dramatic success when entering fast-growing markets, but
manufacturers can certainly improve their chances for
success by developing a sound understanding of supply
chain issues early in the process.
While it is easy to focus only on the potential new
revenues offered by high-growth global markets, it is
critical that companies plan for profitable growth—and
that means putting in place the right organization, supply
chain design, global planning capability, market understanding
and technology architecture before significant
capital investments are made. Of course, speed is of the
essence in serving fast-growing markets, but much more
important is the ability to make intelligent decisions that
will increase the chances for profitable growth over both
the short and long terms.
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