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"Reconciling conflicting objectives"
In addition to labor and logistics costs, flexibility, resilience and sustainability are now important criteria for location decisions.
Interview with Ahmed Sahyoun and Benjamin Thron, ROI-EFESO Management Consulting AG
Mr. Sahyoun, Mr. Thron, what characterizes location decisions today and which dimensions play the most important role?
Ahmed Sahyoun: Decisions about Footprint design are made over the long term and follow general trends and objectives. In principle, five central dimensions can be identified, which must be balanced in a company-specific manner.
On the one hand, of course, it's about optimizing costs in the network. As long as we have intense global competition, this will not change. In addition, the resilience of the network to external shocks and disruptions must be increased, for example by being able to switch between plants. A third dimension is flexibility, i.e. the ability to respond quickly to market fluctuations and changes in demand, to keep delivery times short and customer proximity high. Another topic is sustainability in the sense of the UN Charter with its 17 primarily qualitative sustainability goals, which more and more companies have committed themselves to at least partially fulfilling. This also includes reducing the emission of climate-damaging gases, a rather quantitative topic, as CO2 emissions can be calculated.
Footprint design is about taking a holistic view of these five dimensions, which can also be in conflict with each other. For example, if I have to reduce costs, but at the same time want to be close to the customer, who is located in a high-wage region. This integrated view is indispensable for gaining a complete picture, even if a specific Footprint project does not focus on the entire range of topics, but only on individual topic modules.
Benjamin Thron: This perspective then needs to be supplemented by a consideration of the risks arising from the relocation. This involves both implementation risks and, for example, political risks that are difficult to predict. In sum, there are a large number of relevant factors. Individual ones, such as the risks associated with transport security and transport costs, can be calculated. However, most of them are qualitative in nature, so that the overall model cannot be captured mathematically either.
AS: And finally, it's also about the transformation process associated with any relocation initiative. Again, there are some quantifiable issues, such as investment calculations. But it's also very much about the people you have to bring along in the change. And that requires very intensive, sustained communication, education, training and much more.
What are the effects of the fact that optimal footprint decisions cannot be calculated with mathematical precision?
BT: The most important consequence is that you are very free in your strategic decisions. We are talking about periods of five to ten years for which we are working out a strategy and have relatively few input factors. The downside of this is, of course, a high level of complexity. In addition, very many companies have little experience with footprint design. They may have historically grown networks and a lot of experience in their operational management - but not in their strategic planning.
How do you ensure validity and transparency of decisions in the face of such complexity?
AS: The most important step is to gain maximum clarity about the objectives very early in the project. What do I want a modified footprint to achieve? Do I want to save costs, get closer to my customers, do I want to reduce susceptibility to disruptions, or secure access to critical know-how and critical production factors? This needs to be discussed intensively, which creates clarity and sharpens the project focus.
This framework must be made very transparent to the plants involved. After all, a Footprint project is always an optimization of the entire network, never of the individual plant. In addition, the people involved, both in the core team and in the participating plants and, if necessary, central functions, must be intensively trained and informed. What are the phases and building blocks of the project, what figures flow into the decisions and in what form, what project risks exist. That's why we usually organize a kind of boot camp in our Footprint projects at the start of the project.
How can the complexity in Footprint projects be managed in concrete terms?
AS: From a methodological perspective, Footprint projects should be set up as modularly as possible. It is possible, for example, to take a more in-depth look at selected areas, such as distribution. In this case, mathematical models can be used more intensively and the proportion of quantifiable factors can be increased.
BT: Another factor is to focus on aspects that have a significant impact and do not influence the third decimal place of a model. For example, one may come to the conclusion that the issue of CO2 emissions is enormously important from a business perspective - but not for the decision about the Footprint. This is the case with automobiles, for example. The main CO2 emission takes place after the sale. Manufacturers must therefore consistently improve the carbon footprint of their fleets - but location decisions ultimately have no influence on this. Our experience shows that it is essential to make transparent why some factors are ignored in order to ensure acceptance of the decisions.
AS: This is also where our experience comes into play. ROI-EFESO has been involved in the Footprint issue for many years and has extensive knowledge of relevant factors and interrelationships that we bring to the discussions. We can therefore use filters to simplify the decision-making processes. In the first iteration stage, we try to think as broadly as possible. In other words, we make an initial assessment and then work out the sensible variants with the core team. In the further course, we then fine-tune the filter and work out a few scenarios in detail.
What software-based tools are used in this process?
BT: Ideally, the process is also didactically supported, especially by smart tools, for example for visualizing complex structures and scenarios, such as existing and future networks, intermediate steps, and interim results. This increases the possibilities for fact-based discussions and decisions - both in the steering committee and among team members - and significantly improves transparency. The Footprint issue is complex and multi-layered; it is often difficult even for top management to see the whole picture. That is one thing. The other is tools for simulation, optimization, or risk assessment. Here, there are numerous commercially available solutions that can be put to good use. However, one must be aware of the limitations of these solutions.
Where do these boundaries lie?
AS: No software answers the really important questions in Footprint initiatives. What does the company want to achieve? What are the conflicting goals and is management aware of these conflicts? Can the goals be achieved in the context of the specific market situation and the general environment? In addition, it is necessary to have a precise understanding of the production process, for example, in order to be able to assess the effects of relocations. Can I break up value streams? Can I separate semi-finished and finished part production? Where is the variant origination point? Such topics have a massive impact on future network structures and cannot be covered with tools - they require experience, technical know-how and leadership.