Reference no: EM133339867
Assignment:
Unilever is one of the world's oldest multinational corporations with extensive product offerings in the food, detergent, and personal care businesses. It generates annual revenues in excess of $50 billion and sells more than 1,000 branded products in virtually every country. Detergents, which account for about 25 percent of corporate revenues, include well-known names such as Omo, which is sold in over 50 countries. Personal care products, which account for about 15 percent of sales, include Calvin Klein Cosmetics, Pepsodent toothpaste brands, Faberge hair care products, and Vaseline skin lotions. Food products account for the remaining 60 percent of sales and include strong offerings in margarine (where Unilever's market share in most countries exceeds 70 percent) tea, ice cream, frozen foods, and bakery products.
Historically, Unilever was organized on a decentralized basis. Subsidiary companies in each major national market were responsible for the production, marketing, sales, and distribution of products in that market. In Europe the company had 17 subsidiaries in the early 1990s, each focused on a different national market. Each was a profit center and each was held accountable for its own performance. This decentralization was viewed as a source of strength. The structure allowed local managers to match product offerings and marketing strategy to local tastes and preferences and to alter sales and distribution strategies to fit the prevailing retail systems. To drive the localization, Unilever recruited local managers to run local organizations; the U.S. subsidiary (Lever Brothers) was run by Americans, the Indian subsidiary by Indians, and so on.
To knit together the decentralized organization, Unilever worked to build a common organizational culture among its managers. For years, the company recruited people with similar backgrounds, values, and interests. The stated preference was for individuals with high levels of "sociability" who embrace the company's values, which emphasize cooperation and consensus building among managers. It is said that the company has been so successful at this that Unilever executives recognize one another at airports even when they have never met before. Unilever's senior management believes this corps of like-minded people is the reason its employees work so well together, despite their national diversity.
Unilever has also worked hard to periodically bring these managers together. Annual conferences on company strategy and executive education sessions at Unilever's management training center outside of London help establish connections between managers. The idea is to build an informal network of equals who know one another well and usually continue to meet and exchange experiences. Unilever also moves its young managers frequently, across borders, products, and division. This policy starts Unilever relationships early as well as increases know-how.
By the mid-1990s, the decentralized structure was increasingly out of step with a rapidly changing competitive environment. Unilever's global competitors, which include the Swiss firm Nestle and Procter & Gamble from the United States, had been more successful than Unilever on several fronts-building global brands, reducing cost structure by consolidating manufacturing operations at a few choice locations, and executing simultaneous product launches in several national markets. Unilever's decentralized structure worked against efforts to build global or regional brands. It also meant lots of duplication, particularly in manufacturing, a lack of scale economies, and a high cost structure. Unilever also found that it was falling behind rivals in the race to bring new products to market. In Europe, for example, while Nestle and Procter & Gamble moved toward pan-European product launches, it could take Unilever four to five years to persuade its 17 European operations to adopt a new product.
Unilever began to change all this in the mid-1990s. In 1996, it introduced a new structure based on regional business groups. Within each business group are a number of divisions, each focusing on a specific category of products. Thus, within the European Business Group is a division focusing on detergents, another on ice cream and frozen foods, and so on. These groups and divisions have been given the responsibility for coordinating the activities of national subsidiaries within their region to drive down operating costs and speed up the process of developing and introducing new products.
"Lever Europe" was established to consolidate the company's detergent operations. The 17 European companies now report directly to Lever Europe. Using its newfound organizational clout, Lever Europe consolidates the production of detergents in Europe in a few key locations to reduce costs and speed up new product introduction. Implicit in this new approach is a bargain: the 17 companies relinquished autonomy in their traditional markets, in exchange for opportunities to help develop and execute a unified pan-European strategy. The number of European plants manufacturing soap has been cut from 10 to 2, and some new products will be manufactured at only one site. Product sizing and packaging are harmonized to cut purchasing costs and to accommodate unified pan-European advertising. By taking these steps, Unilever estimates it has saved as much as $400 million a year in its European detergent operations.
Lever Europe is also attempting to speed development of new products and to synchronize the launch of new products throughout Europe. Nonetheless, history still imposes constraints. While Procter & Gamble's leading laundry detergent carries the same brand name across Europe, Unilever sells its product under a variety of names. The company has no plans to change this. Having spent 100 years building these brand names, it believes it would be foolish to scrap them in the interest of panEuropean standardization.
Questions:
1. Explain the organization of supply chain in Unilever.
2. Explain the benefits of key location.
3. Indicate a supply chain strategy for Unilever.