Multinational Enterprise - Essay Example

1. Using one specific multinational enterprise with which you are familiar, examine the ways in which it has used logistical and value chain strategies in its overseas operations. Explain the reasoning behind the choices it has made. Suggest any changes it might make to its logistical and value chain strategies over the next few years, explaining your reasoning. UNILEVER 1. Introduction and Background Unilever Multinational Corporation was borne out of an amalgamation of Lever Brothers and Margarine Unie in 1930 which is located in UK and other regions. At the time they were one of the British soap makers and Dutch Margarine producers. Unilever is regarded as the one of the leading fast moving consumer products suppliers. The business environment of Unilever has been transformed in to a more complex and diverse phenomenon with its independent approach to managing an internationally diverse strategic operational environment, supply chain (logistics) and value chain (www.unilever.com). It owns over 400 world’s popular consumer brands of foods, beverages, personal care and cleaning agents thus offering richness and variety to a global customer base in different countries. Its overall business strategy encompasses a series of other segmental operations. Unilever has adopted a functionality-based approach to its logistic operations, value chain management and decision making in the larger context of corporate expansion, both within the UK market and other regions (Boyle, & Ottensmeyer, 2005). It sells packaged consumer goods to captive consumers who have rarely abandoned the company in preference for another. The logic behind its success is to be found in its mission statement – “meeting the everyday needs of people everywhere”. Thus out of every two households in the world one uses Unilever products. It controls roughly 90 subsidiaries in the world. It’s the second largest packaged food company in the world just behind Procter & Gamble (www.unilever.com). Its global network of logistics and value chain has little parallel elsewhere. 2. Analysis 2.1. Unilever’s logistic operations and value chain related benchmarks The current global logistic operations strategy at Unilever is largely determined by its Enterprise Resource Planning (ERP) strategy, Balanced Score Card (BSC) Framework and Value, Rarity, Inimitability, Organization (VRIO) framework. In ERP the top-down perspective has helped to map out strategic partnerships with a diverse network of suppliers (Jacobs, & Chase, 2010). Thus its ERP techniques have facilitated Unilever’s value chain management functions to a greater extent by doing away with tedious and time consuming processes. Enterprise software is built around a large number of predefined business practices that gives rise to best practices. Best practices are the most successful solutions or methods of solving problems in an organization for regularly and effectively achieving business goals. It also helps form a more ‘customer-driven’ organization by giving faster responses to customer queries (Reitsma, 2001). The internal corporate environment of Unilever is extensively determined by the BSC framework with existence of a correlation between the four elements – financial, customer, internal business processes and, learning and growth. In fact its logistics related competencies have enabled it to achieve strategic advantage against rivals and in order to remain at the top the company has adopted a value chain management process that enhances its capacity to create customer value. 2.3. Products and/or services designed to enhance value chain at Unilever Unilever faces big competition from rivals and thus has been compelled to introduce new tools and techniques in its overall business processes. Lean production in the consumer goods companies is a novel concept which has now come to be adopted by major companies in the food industry such as Unilever. However Unilever has uniquely been positioned in its sales strategy especially through the implementation of UES and TTDSS system for integrating forecasting and planning, producing the right product mix, order processing and distribution, factory planning and scheduling and operational maintenance within the group. It has been placing emphasis on internal value creation thus passing the benefits to customers. This unique corporate proposition is more likely to sustain it in the long run in these market segments. 2.4. Unilever’s current logistics operations As one of the world’s largest consumer good suppliers, Unilever’s efforts to remain competitive against the bigger rivals require such supply chain and logistics management techniques to be integrated into the existing strategic operational environment. Thus the following four aspectual phases have been identified by Unilever as significant for logistics or/and procurement. In the first instance the product manufacturing facility and its delivery have to be designed and planned in a manner that takes into consideration the customer’s purpose and need. Similarly rationale for positive iteration is emphasized so that negative iteration is minimized as far as possible (Maljers, 1990). Secondly, smart sourcing of materials with identification of market trends and selecting qualified suppliers in a manner to achieve value at the highest possible level and minimize waste at the delivery stage is essential for value chain management. Thirdly manufacturing concept is emphasized as a measure aimed at improving the qualitative outcomes. Thus efficiency in production as a whole is much more important than cost reduction measures and relative speed. Finally distribution/customer service is a big challenge that Unilever has to deliver its finished products to the right place, at the right time with right quantity. 2.5. Unilever’s Logistics/Supply Chain Expansion Its current expansion program includes a number of acquisitions and mergers. The addition of Napoca in Romania gave them a grip over the East European markets and now the company is able to launch its ice cream portfolio there. The acquisition of Baltimor ketchup in Russia allowed them to fill out their Dressing portfolio. The acquisition of the Personal Products brands of Sara Lee, such as Sanex, Radox, Neutral and Dushdas, allowed them to meet consumer needs across a wider range of price points in the Skin Cleansing and Deodorants markets (Miller, 2008). These were the acquisitions that Unilever made in 2009 and they have helped it reach new markets in the midst of the economic crisis, especially with strategic expansion in its logistics. Its smaller acquisitions like the purchase of Kwality Group’s ice cream plants in Delhi, India by Hindustan Lever Limited (HLL) and bigger ones like Japans Ajinomoto Co. for $381 million have given the company’s logistics a new boost (Boyle & Ottensmeyer, 2005). The strategic significance of these acquisitions has to be examined against the backdrop of their future value chain enhancement and logistics operations. Above all they have to be considered as part and parcel of the overall Unilever operations in the world. Its organizational structure and culture have augmented this A&M drive despite a number of set-backs that it suffered in some of its operations recently. 2.6. Unilever’s modern operations and logistics Unilever has been using supply chain related logistics to boost its stocking strategy. For example its mature products are well managed with diminishing stock levels and there is extra logistical supply and procurement for demand unpredictable products. Thus it is using customer demand planning (CDP) system, which basically, depends on the historical data such as promotional and current order data. Unilever has successfully adopted new tools and techniques in its overall business processes so that it might overcome logistics related constraints. Thus it has designed time series methods for its demand forecasting which basically depends on repeated observations of demand trends and makes a forecast for a particular product. This helps it to limit procurement of supplies to a minimum thus making use of cost advantages. Demand forecasts have been consistently reviewed and controlled with predictions. In fact idle scale economies in the consumer products industry have forced authorities to reorient competition towards achieving price-service-value synergies at the expense of undesirable outcomes associated with free entry. Unilever has been placing emphasis on internal value creation thus passing the benefits to customers. This unique corporate proposition is more likely to sustain it in the long run in this market segment. The relative attractiveness of a market segment depends on profit margins (Jones, 2005). Unilever has come up with contracting out to suppliers and sourcing to import/export trading companies. However the company gives greater priority to dealing with manufacturers directly, so that its international operations become standardized. Unilever chooses suppliers on the basis of competitive prices, quality and delivery efficiency. These suppliers have gained the trust of outsourcing contractors like Unilever. Unilever has successfully reduced sourcing costs by contacting out to well-established international logistics and supplies firms. Though it hasn’t partnered with trading companies, it has cultivated links with supplier networks that enable it to beat competitors. The key success factors include the strong third logistics company partnership and the desing and implementation of effective communication networks. Unilever has long term supply and logistics contracts with third parties like those who are not directly involved with Unilever but execute supply orders on the shortest possible notification. The evolutionary process of Unilever’s logistics planning strategy has been focused on creating a sound and viable relationship with the supplier. In order to achieve this exalted objective Unilever has been forced to adopt a number of other strategies. 2.7. Logistics management policies of the organization Unilever’s warehouse management policies have helped the company to achieve a synchronized system of supplies with smooth, rapid material flows and work. Unilever has also adopted automation systems in calculations thus effectively guaranteeing both a reduction in the inventory carrying cost and ensuring availability of materials. Though Just-in-Time (JIT) stock control procedures are in place to ensure cost reductions so that value creation can be enhanced there are other more complex policy mixtures in place. These inventory management policies help prevent the occurrence of schedule and cost related problems (Calza, F. & Passaro 1997). Unilever implements ABC analysis so as to keep effective inventory levels by eliminating excessive inventory carrying, idleness due to bottlenecks, unnecessary processing, unnecessary movement of workers and unnecessary movement of materials. The major advantage of ABC analysis is that it can improve purchasing decisions and therefore competitiveness for Unilever. Also material class and features would help Unilever to manage the inventory in hierarchically. It does this by ways such as minimizing data entry as well as errors by streamlining the common data for group of materials, it saves resources and dispensing with the need for inventory operations. Inventory management policies have also facilitated Unilever to increase its user satisfaction and speed. 2.8. Resource planning tools that are currently in use As a part of Unilever’s business strategy it has leveraged its business to improve resource planning and to reduce the overhead cost. It has successfully completed a restructuring of regional operations with implementing the enterprise resource planning software system (ERP), such as SAP, CRM (customer relationship management), and SCM (Supply Chain Management). It has enabled Unilever to initiate information system related policies that would continuously bring about positive changes in their operations. For instance the current wave of mergers and acquisition programs of Unilever has been attributed to the ever rising expectations that the global economy would sooner or later recover from its ongoing downturn. ERP systems combine the key business processes of Unilever into a single software system so that information flows smoothly throughout the organization, facilitating coordination, decision making and efficiency. Thus their main purpose behind this was to adopt a successful operational base for its manufacturing and supplying products and to gain competitive advantage with delivering lower cost and higher standard consumer products (Dekker, 2003). In fact it supported for cross-functional communication and cooperation among the team members. ERP have a big impact on overall operation of the Unilever. Finally ERP system would help the management to maintain the Key Performance Indicators (KPI) and it can be regarded as the foundation for innovation and change of Unilever. 2.9. Unilever’s continuous improvement and value chain management Unilever has achieved its continuous growth by adopting different continuous improvement techniques including, flexible supply chain management in its production and supply networks, spending €891million on R&D, investing in innovative product design, packaging, marketing and advertising and spending €89 million on CSR (corporate social responsibility) programs. Thus it launched a single strategy during 2009 period, for all the business activities in different regions in order to ensure the quality of products that are cost-competitive, consistent growth through its mergers and acquisitions, improving profits and cash flow by reducing waste and stocks and so on. In fact it could win over the global market through the ‘One Unilever Supply Chain Team’ by contributing €1.4 billion to its savings. The strategic competitive environment of the global packaged food industry in particular and the consumer goods industry in general have been characterized by a series of volatile factors such as demand-centric and supply-centric influences (Barney, & Hesterly, 2005). Health worries on the part of consumers have taken a particularly worse turn for the packaged food industry while suppliers are going for mergers and acquisitions to achieve scale economies and bigger profit margins. This trend has brought with it a host of other consequences within and without the industry. Such developments have placed Unilever in a particularly tight spot with regard to value chain management. Also lean manufacturing principles have been used to enhance the quality of the service in Unilever by reducing the errors and variability in products and service process (Lewis, 2000). Therefore it can be used as a quality management method with sequence of steps to achieve desirable objectives such as improving the quality of the product, efficient service delivery, safety, reducing the cost and increasing the profits and so on. Lean concepts have been known to solve production and operation related issues though how far these concepts have helped the current process change at Unilever is not determined metrically. Unilever is implementing level strategy as an aggregate planning strategy so that value chain management process can be reinforced with the use of new techniques. Thus it’s maintaining production and staffing plans with its machines capacity and workforce with a constant output rate. According to the level strategy Unilever is producing a steady output rate with combination of both the inventories and workers in meeting the fluctuations in demands (Smith, 2009). Thus level strategies would ensure the optimum utilization of company resources with maximum output rates and stable workforce in order to satisfy the end consumer. Unilever has adopted different types of tools and techniques such as efficient and challenging supply chains, over hundred stock keeping units and supplier audit programs in order to effectively schedule the production process, resource mobility and capacity utilization. Thus value chain management process and supply chain management are essentially influenced by combined scale economies of each merger. Such synergies in turn produce a series of positive outcomes for the company (Stevenson, 2008). For instance strategic management process is fundamentally determined by them despite the fact that the top management would not adhere to formulaic principles that were hitherto followed. Unilever has adopted some of these far reaching changes in its effort to create synergies both at the level of management and technology integration. Such efficiencies often attributed to horizontal mergers have to be merger-specific in order to have any meaningful outcome. Unilever’s merger with Bestfoods was considered to be such an experience albeit horizontal efficiencies have not been effectively translated into benefits for consumers despite successful value chain management. This has been attributed to a lack of merger-specificity. In the absence of merger-specificity horizontal synergies are less likely to occur. Unilever after the merger with Bestfoods had a very strong portfolio of global and regional brands. Instead of the breakfast cereal prices coming down, they went up. 2.11. Unilever’s rising logistics operations network with governmental organizations Unilever now has direct connections with governmental and local body-level organizations to carry out some of its logistic functions and operations in the world. Its Asian operations, especially in India are highly characterized by a desire to create value to the customer. In the process its manufacturing plants have become more sophisticated and logistics like transport and carriage of goods have become more sophisticated with the introduction of refrigerated mobile containers and carriages (Clift & Wright, 2000). Different companies adopt different operational strategies including logistics operations and value chain management. Thus operational strategies allow managers to achieve growth without much trouble in raising funds at premium rates in the financial markets. This is a blessing in disguise because it’s desirable to increase output at the lowest possible average cost or to operate on a flatter marginal cost curve. Production and supplies/procurement managers are under constant pressure to achieve these output and sales related goals despite the fact that there is nowhere to grow. Mergers and acquisitions (M&A) are an integral part of the corporate finance sector (Donald, 2008). Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, getting involved in an M&A can be a main landmark in his whole career. These types of transactions happen very often in the finance sector. Firms purchase other firms for a number of reasons. Whatever reasons prompt a particular deal, M&A are thought to be successful when multiple synergies are achieved and when the business combination increases the net cash flow of the merged business more than what each firm could have achieved on its own. Value chain related synergies at Unilever are the most visible in its overseas operations (Liu & Fehling, 2006). There are economies of scale that would bring down the average cost to a minimum. X-efficiency as related to management techniques will all the more enhance the new company’s management structures thus strengthening the hands of the top management to motivate subordinates towards the achievement of organizational goals. Unilever’s M&A strategy has been specifically oriented towards the achievement of these scale economies – technical, managerial, financial, labour-related economies, marketing and strategic. Finally there is the combined demand for the products of two companies. How would the average consumer respond to this new phenomenon, depends on the correlated outcomes of the pricing strategy and product development strategy of the new company. Unilever has been able to take into consideration the combined effect of such acquisitions and mergers on price levels but nevertheless their impact on value chain and logistics sometimes imposed some constraints. For example its North American operations have been characterised by some logistics related problems including the payment of a higher cost for refrigerated transportation (Karlsson, 2003). Unilever’s divestments have also been equally significant both strategically and psychologically. For example a series of divestments that Unilever carried out recently have produced some highly desirable and undesirable results for the whole company. In 2006 it sold most of its Frozen Foods business under the Birds Eye and Iglo brands in Europe to an array of buyers. It retained only the Italian Frozen Foods business with a view to reorient it towards a more dynamic market-oriented venture. The European operations include France, the UK, Spain, Portugal, Ireland, Italy, Germany, Greece, Austria, Belgium and Ireland. The Netherlands-based wholly owned subsidiary, Unilever Overseas Holdings BV (UOHBV) of Unilever sold much of its stake in Rossel Industries Limited in India to M.K. Shah Exports in 2005. These divestments illustrate how much divestment-specificity could produce reverse positive synergies through horizontal divestments. Global brands not only reach the decline phase of the product life cycle but also tend to disaggregate synergies when the company goes too much on an M&A spree for too long. Thus Unilever at times suffered setbacks in its logistics related overseas operations. Conclusion Indeed the economic developments such as the current global recession and the financial crisis have had a telling impact on Unilever’s operations during past years. As the financial analysis for past years shows Unilever could not achieve the same degree of success in all its operational areas though financially the company continued to operate on a sound footing. This is borne out by the fact that Unilever successfully integrated a wider spectrum of operational strategies including logistics and value chain management (Gunasekaran, & Ngai, 2004). In addition to these seamless integrations, the company also registered on its continuous growth trajectory some remarkable financial ratios. Unilever was operationally successful domestically as well as globally in managing its critical success competencies including the corporate goals such as proper value chain management and logistics control. The fast moving consumer goods market operates in a highly competitive environment because there are only a few barriers to entry thus increasing the power of buyers. In fact Unilever is continuously looking for future improvement opportunities in their production and supply as well as other aspects which serve as drivers of improvement, growth and flexibility in operations so as to stay ahead of their competitors through value chain management and logistics operations at their best. REFERENCES 1. Barney, J.B. & Hesterly, W.S. 2005, Strategic Management and Competitive Advantage: Concepts, Pearson Education, New Jersey. 2. Boyle, M.E. & Ottensmeyer, E. 2005, ‘Solving business problems through the creative power of the arts: catalyzing change at Unilever’, Journal of Business Strategy, vol. 26, no. 5.  3. Calza, F. & Passaro 1997, ‘EDI network and logistics management at Unilever-Sagit’, Supply Chain Management: An International Journal, vol. 2, no. 4, pp. 158-170. 4. 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