Plants as sources of strategic flexibility in manufacturing networks

The international manufacturing landscape has changed significantly over the past 10 to 15 years. Manufacturing as a percentage of GDP has been reduced in many of the industrialised countries, and we have seen a major shift in the allocation of production capacity around the world. In the period 1995-2005, manufacturing moved from 18.9% to 14.4% of GDP in the USA; from 21.7% to 14.4% in the UK; and from 23.4% to 21% in Japan. At the same time, manufacturing activities have increased in China, India and Brazil, in line with the overall growth of their economies.

In many cases, the reorganisation of manufacturing networks is driven by cost optimisation. That focus is understandable, and often necessary. Yet this preoccupation with cost shouldn’t obscure the long-term importance of other, more strategic aspects of an organisation’s manufacturing network.

Based on a longitudinal empirical study, we have been able to observe the dynamics of plant networks. The first stage of the study was an extensive survey of the plants of eight multinationals, based mainly in Europe, in 1995-1996. Then, in 2005-2006, these companies were revisited and interviewed to discover the current architecture of their plant networks.

The study illustrates that the organisation of manufacturing networks is indeed very dynamic. Whereas the eight companies had 59 plants in the first round of our study, in the second round of our study (10 years later), about one third of the plants had either been closed or sold, and roughly 40 plants had been added to the company networks. Some of these plants had been added to the network through acquisitions or mergers, and others were greenfield projects. As a result of these moves, the companies had evolved from primarily European to truly global players.

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