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COO Insights on Manufacturing

think: act BUSINESS


Japan's predicament shows that the doctrine of radical international specialization, dogmatic interpretations of vendor-supplier relationships and a concentration on specific locations and suppliers are extremely vulnerable. This particular impact of the disaster seems to have taken everybody by surprise. Yet it has happened just the same.

What lessons are companies learning from this situation? For some time, businesses in the industrialized economies have been trying to make up for the disadvantages their home bases have experienced as production was offshored to countries with low labor costs. In the process, they have cut their supply chains as fine as possible. Yet the days of indiscriminate outsourcing are now over. Today, realizing the best possible value chain configuration is uppermost in the corporate mind.

Europe, it seems, is the beneficiary of this shake- up. Manufacturing, long regarded as a millstone around corporate necks, is being rehabilitated. Exactly how is described in this issue of our COO magazine: Danish toy company Lego, for example, has now reverted to making all its world-famous building bricks in house – and has successfully turned itself around after years in decline. Meanwhile, astronomical development costs are forcing the automotive industry to set up international networks. Yet the new BMW "i" series and Porsche's mini- Cayenne will still roll off the production lines in Leipzig. Meanwhile, Haier, the most Western of all Chinese companies has elected to build its refrigerators in Italy!

Has the exodus toward Asia been halted, then? Are jobs returning to their original home? To Germany, France and the UK? Very probably not. Yet it is just as unlikely that the supposed high-wage countries will be unable to compete with the world's aspiring industrialized nations. Value chain and production networks are no longer a question of geography alone, but clearly also have to do with a company's culture.

"Know your strengths," Lego's Supply Chain Manager Bali Padda urges in an interview with Roland Berger. Manufacturing is evidently back on the list.

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