SHORT VIEW

Europe today: four steps to the ideal model for industrial efficiency

Western and Central and Eastern Europe are more connected than ever before, and the supply chains run deep. But it’s a competitive world. We asked six business leaders: how can a closer Europe make a more efficient enterprise?

By Adam Burns, editor, MeetTheBoss TV

In 1988, Pope John Paul II set out his stall regarding the East-West Schism. “Europe has two lungs,” he said. “It will never breathe easily until it uses both of them.” He was talking about churches; he could have been talking about states.

One year later, in November 1989, and with David Hasselhoff riding high in the German charts, the Berlin Wall came down. A new Europe took its first deep breath.

Since then, Western and Central and Eastern Europe have become ever more economically and financially connected. According to a recent report of the Economics Department of ING, both regions secured their roles in the global value chain between 1995 and 2011: employment has risen, many sectors - especially transport equipment and machinery - are benefitting from integrating their production processes and, contrary to what one might think, this integration has created medium- and high-skilled job growth in Central and Eastern Europe.

The ideal model for industrial efficiency

Our two lungs are getting stronger. The challenge is that Europe isn’t the only one competing for air.

“The European project works when there’s growth,” says Tim Becker, director of Global Innovation for Castello, a division of Arla Foods, a global dairy cooperative owned by 13,500 European dairy farmers. “When the growth stops, everybody starts putting their arms around the pie and holding on for dear life.”

When times are tight, to the most efficient go the spoils. So… now we have a connected Europe, what does the ideal model for industrial efficiency look like?

1. Follow the competitive advantage

“All multinational companies need a high quality and competitive supplier base,” says Carlos Lahoz, director of Sales, Planning and Supply Chain Management for KIA Motors Europe. “That is linked with infrastructure and the relationship with the local community. Multinational companies have to place their factories in the nation that creates best competitive advantage.”

“Obviously, cheap is important, but it's definitely not the first criterion,” says Elizabeth Brownhill, CFO Southern Europe, France and Benelux with TNS. “There’s education levels, there’s political stability, there’s inflation. That's what made India much less competitive for us… Inflation is going through the roof.”

2. Look to the short end of your balance sheet

“We see companies everywhere along the rating grid looking at the short end of their balance sheet to try to make it more efficient,” says Robert O’Donoghue, Global Head of Working Capital Solutions with ING. “Monetising receivables, extending payables, using, for example, their payable capabilities in a much more sustainable fashion by using banks as intermediaries, getting money into the supply chain much more quickly, fortifying and reinforcing their supplier base by getting cash to them faster without sacrificing their own business models.”

3. Nail your supply chain, end-to-end

For Folkert Bouwe Bölger, vice president at Bang & Olufsen, the most efficient manufacturers are no longer just screwing things together. “It’s about managing the customer value chain. It’s about the full order fulfilment, which is not only delivering the product, but delivering the service, delivering the after service, and delivering the installation. That is going to be where the real decisive, differentiating factor will be.”

4. And innovate everywhere

“If you don't innovate, you will be lost,” says O’Donoghue. “Our CEO very often uses the terms disruption and disruptors, and I think the view within this organisation: is if you don’t disrupt yourself, you will be disrupted.”

“The people that I think about areRyanair and the low cost, no frills airline industry. They have built a fantastic model over time, and it’s very simple what they do. They manage costs down. They try to deliver a good product to their clients. And they have opened up entirely new markets as a consequence.”

“In the retail industry, Aldi and Lidl I think are disruptors and innovators. And you can see the impact that they’re having on traditional marketplaces.”

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The View is the online magazine of ING Wholesale Banking