17/05/2022
Article
Study | 2022 Purchasing crisis & Recovery patterns
A combination of three factors is driving shortages and price increases across main industrial purchasing commodities.
Read moreEnhance the competitiveness: integrate value
Relocating elements of the value chain to emerging countries is a global trend that started a few years ago.
At that time, the firms’ main motivations were to benefit from low labour costs and to reduce fixed capitals (reducing non-recurring costs of tools) while bringing flexibility into the organization.
The only way to keep hourly rate and research & development capabilities is to maintain margins. The Low-Cost trend makes it impossible because one of the conditions for low prices is to minimize the overheads (indirect costs) and structure costs.
Furthermore, the key of Low Cost is to move abroad a product that we could produce here. But this principle excludes the opportunity of reinventing the product and erect an unassailable limit: breakdowns of design are out of reach as soon as the product is relocated due to a lack of skills and structure.
Finally, the benefits of the Low Cost only last a while: hourly rates and even exchange rates often deteriorate and this phenomenon is even stronger since relocation became trendy.
Moreover, logistic and import costs are particularly volatile but remained significant and lead to high purchase volume at the expense of flexibility.
The concept of value can be treated through multiple aspects that go beyond cost competitiveness:
At Inter Action Consultants we are convinced that duplicating well-known solutions cannot be considered as a differentiating competitive advantage.
However, the development for value is a growing trend and a great opportunity, because if there is a bottom limit, there is no limit up!
The keys to reintegrate value in France and the strength of France:
It’s a development philosophy that involves all the function of the firms, for the sake of global coherence between the goals and products strategy, design, industrial and supply chain.
These areas of improvement and competitiveness can be considered and deployed, either in each firm individually in a business approach or more macroeconomically. In this case the industry is considered as a major economic player aiming at creating a positive ecosystem to develop pools of expertise such as competitiveness clusters.
An example of a successful resettlement in France related to a drastic costs reduction (-45% accomplished, for an original goal of -25%): secondary electric distribution cell of medium voltage.
Emmanuel SABONNADIERE Head of Transformation Business at Philips Lighting , and at the time, Vice-President of the BU Secondary Distribution atAlstom T&D and project manager.
Mr SABONNADIERE can you tell us what were your expectations at the beginning of this project?
« This project involved a 220M Euros Business Unit based mainly in France and in Germany of ,employing 2.200 people. On the one hand, the project was to take over a high-end product developed in Germany for the german market with high over-costs and turn it into a competitive product. On the other hand, the project was to transform this product in a standard for the european market and for the world market. At the same time, French and German factories were refocused on primary and secondary product ranges. During this project, IAC helped transferring the technologies from Germany to France, manufacturing and the network of suppliers with a close partnership between France and Germany to ensure. »
Key points of the 18-month project:
A lonely champion doesn’t stay on top level for a long time, and this current trend that we emphasize here largely contributes to regenerate the national industry.
We often work with French companies that wish to relocate their production on the national territory for an equivalent cost. Our partners goal is to find an ecosystem where interconnection interests are better understood and more aligned between contractors and subcontractors.
Some foreign companies, are also seeking competitive national partners able to provide their French subsidiaries, to avoid importing proprietary technologies.
Finally, medium sized companies also make the choice of France to develop new innovative products and features or to enlarge their production capabilities.
« We have the competencies and the know-how, with the resources to support our ambitions, to be lastingly competitive in France »