Electrolux and strategic network re-design

Filed in archive Market Overview on February 19, 2007

In the recent years, one of the concept which has become really popular in supply chain field is strategic network design. This concept refers to rethinking the whole network of the company and see how total profit can be increased or the cost can be reduced. The experts in the area typically examine the cost of the total network by closing different plants, changing the production capacities and the number of warehouses while keeping the service level unchanged.

One of the success stories in this area is Electrolux. The company is the second biggest producer of domestic appliances but keeping this big thing growing isn't easy. For the last five years, the company has re-considered the shape of its network on a regular basis.

Electrolux has closed or sold 22 plants in high-cost nations in the past five years, with a loss of 14,000 jobs in these regions, while opening up 12 new factories in low-cost areas such as Eastern Europe or Asia.

According to FT, the company today has 55,000 employees, compared to 76,000 in 2001 (excluding the outside products division). Almost all the job losses over this period came from high-cost regions. Australia, Denmark, the US, Germany and Spain have been among the countries in which Electrolux has shut plants while it has opened new ones in Mexico, Poland, China, Thailand, Hungary and Russia. About a third of its workers are now in low-cost nations, compared with 27 per cent six years ago.

Moving factories and cutting jobs in the way Electrolux has done "involves a certain amount of difficulties and pain for the people affected", Mr. Straberg, Electrolux's CEO says.

"But on the whole the move to globalization - as illustrated by the spreading out of production industries to a lot more countries than those which participated in this in the past - is a good thing."