Prediction One of our Supply Chain Matters 2013 Predictions for Global Supply Chains foretold of continued global economic challenges, especially involving Europe and the Eurozone countries. Recent quarterly financial results from select European based manufacturers provide contrasting perspectives for dealing with the current global market challenges. These challenges will translate to their respective cross-functional supply chain organizations.
This past week, the Financial Times has been reporting that two of Germany’s prominent manufacturers, Siemens and Bosch are each been compelled to embark on significant restructurings due to underestimating the current weakness of European product demand in the second half of 2012. On the other hand, Anglo-Dutch consumer goods provider Unilever provided some significant results fueled by continued growth across emerging markets and a nimble global product rollout track record.
Siemens, with a diverse set of businesses targeting different industries, reported its net profits declined €1.2 billion ($1.6 billion) in the December ending quarter. The German based conglomerate reported setbacks in its high speed rail and solar businesses. Overall order volumes were reported as declining by 3.3 percent, signaling continuing business slowdown in the European sector. Product demand within its industrial automation business fell by 12 percent. Siemens has now initiated a €6 billion restructuring plan over the next two years after senior executives acknowledged underestimating the degree of decline in Europe based demand across its businesses. In the first quarter alone, there were €50 million in restructuring costs.
Revenues and profits at Bosch raised a mere 2 percent according to preliminary estimates, prompting that company to review planned capital spending, headcount and operating budgets. Bosch’s automotive sector benefits from some growth in China and U.S. automotive markets. Senior management anticipates weak product demand “at best” in its core European market and further indicated that the priority for 2013 will be on reducing fixed costs, which implies obvious excess capacity within Europe.
Unilever on the other hand provided a far different financial and business picture. Revenues in 2012 grew by 10.5 percent while operating profit increased by 5.4 percent. Q4 sales rose by 8.6 percent indicating strong momentum. The FT reporting notes the long history of Unilever in developing markets sich as India, Indonesia as well as China. Revenues in these markets rose 13 percent in 2012 and 11 percent in the recent fourth quarter. Roughly 55 percent of this company’s revenues now originate from emerging markets, offsetting product demand slowdowns in Europe. The company has demonstrated an agile strategy of rolling out various new products across both developed and developing new markets, but at the same time, understanding the unique nuances of various local markets, including distribution channels. Unilever has also streamlined its corporate structure under the “One Unilever” program umbrella to reduce overall operating costs. Some European and U.S. equity analysts and business media are quick to contrast Unilever’s current success in emerging markets to that of Procter & Gamble which has struggled for growth in these markets. Supply Chain Matters has previously cited global automotive manufacturer Volkswagen for its diversified global business and associated supply chain strategies that can leverage growth in emerging or developed markets. While many of Europe’s automotive OEM’s continue to be financially challenged by current economic conditions across the continent, Volkswagen has managed to continue to demonstrate some profitability, albeit not to previos levels.
This author often cites the critical importance of the ability of supply chain teams to have flexible and resilient capabilities that can respond to both business growth and contraction needs. The most important aspect of these strategies is protecting core capabilities in planning, execution and timely decision-making, as much as possible. Key strategic suppliers must also be preserved.
As noted in the contrasting performance of just three select European manufacturers operating in diverse industry sectors, the tendency for mass restructuring and cost cutting must be balanced with the growth opportunities, product rollout and distribution strategies that may be required in developing markets. Supply chains must be able to differentiate strategies, resources and capabilities for each region and market segment, and to allow local segments a voice in required market and customer fulfillment needs. They must further foster active product demand sensing capabilities that can turn any market opportunity into revenue and profitable results for the business.