How procurement leaders master global sourcing

Byrne, Patrick M. Logistics Management (2002) 44. 11 (Nov 2005): 26,28. Turn on hit highlighting for speaking browsers Turn off hit highlighting

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To better understand the global sourcing trend, Accenture recently conducted two studies: a survey of 238 senior procurement executives, and a study of international procurement organizations IPOs done in conjunction with the China Supply Chain Council. Show all

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Early in 2005, we discussed global sourcing-developing strategies, capabilities, and processes for acquiring materials from the best resources, regardless of location. Since then, the number of global sourcingadvocates and practitioners has grown dramatically. To better understand this trend, Accenture recently conducted two studies: a survey of 238 senior procurementexecutives, and a study of international procurementorganizations done in conjunction with the China Supply Chain Council (CSCC). Here is what we found: * Overall, procurementspending in low-cost countries is projected to increase by as much as 85 percent within three years.

* By 2007, procurementof goods from companies in Eastern Europe will increase by 85 percent, from South and Central Asia by 75 percent, and from East Asia by 65 percent. Why is so much attention being paid to sourcingfrom low-cost countries? Internal and external pressures have forced many organizations to seek new ways to reduce their overall costs. Capacity management is an increasingly important motivator, leading more organizations to reduce supply-side risk by building additional relationships. Another incentive is guaranteeing alternate supply sources to ensure business continuity. Surprisingly, quality also is becoming a positive consideration. Survey results show that among senior procurementexecutives involved in global sourcingprograms, fewer than 10 percent were dissatisfied with material quality. When asked about total cost, only 2 percent were dissatisfied. Still, there are significant hurdles associated with sourcingfrom distant markets. Principal among these are longer lead times, unreliable delivery, and lack of product innovation. Volatile, unpredictable lead times were respondents' most frequently cited concerns. Accenture's researchers also sought to understand what defines a superior global sourcingorganization. A top characteristic was that procurementleaders-companies that demonstrate the best overall procurementperformance based on purchase-price index, quality, and delivery reliability-approach global sourcingmore aggressively. They spend about 17 percent more in low-cost countries than do non-leaders, and they save about 13 percent more. Procurementperformance leaders also were shown to be more rigorous about assessing capability gaps in suppliers; utilizing bid strategies and fact-based negotiations in sourcingarrangements; establishing innovative approaches to supplier identification; and performing category and risk assessments. FOCUS ON CHINA China is a fundamental part of almost every respondent's global sourcingstrategy. Thus, establishing a presence in China is seen as the critical success factor for a truly effective global sourcinginitiative. Our researchers found that industries with the greatest sourcingpresence in China are electronics and high-tech (26 percent of companies surveyed), industrial equipment (20 percent), food and consumer goods (15 percent), and automotive (11 percent). Increasingly strong representation among segments with high levels of technical and engineering content clearly reflects China's emergence as a provider of quality materials. Procurementperformance leaders are establishing international procurementorganizations (IPOs) as an effective means of maximizing the value of sourcingin China and overcoming the tactical challenges of doing business there. These in-country, shared-services organizations include specialized sourcingteams that perform dedicated order- and logistics-management functions. Survey results show that companies most often use their IPOs to handle supplier market research, supplier identification and qualification, supplier development, and quality inspections. Seventy-two percent of respondents who have IPOs in China agree that these relatively immature organizations are meeting or exceeding initial performance expectations. Simply establishing an

IPO, however, is not sufficient to deliver the greatest value. To achieve maximum returns, companies must incorporate IPOs into well-designed and executed global sourcingstrategies. Here are some key factors they must master to get the greatest benefit from an IPO in China: * An effective governance structure. Procurementperformance leaders ensure that their IPOs develop procurementpractices that are customized for China's unique business environment. * Integration with the home office. One way to achieve this is to assign aggressive savings targets to business units and promote the IPO as a resource for meeting those targets. Another is to appoint someone to bridge the communication and knowledge gaps among the IPO, the home office, and the product lead. * Senior leadership. Accenture learned that 66 percent of IPOs in China are managed by senior executives. Companies need leaders who recognize IPOs' strategic value and have the experience to manage and grow those organizations. * Rigorous talent management. This issue will require a more comprehensive approach-spanning recruitment, retention, and training-than currently exists in most IPOs in China. The high number of businesses that are satisfied with their IPOs, combined with the benefits they currently enjoy and the even greater benefits they expect in the future, makes it undeniable that greater involvement in global procurementis key to improving overall performance. AuthorAffiliation Patrick M. Byrne is managing director of the Accenture Supply Chain Management practice, which provides consulting and outsourcing services for strategic sourcing, procurement, product design, manufacturing, logistics, fulfillment, inventory management, and supply chain planning and collaboration. Based in Reston, Va., he can be reached at pat.byrne@accenture.com.

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Cite Subjects Sourcing, Purchasing groups, International, Polls & surveys, Supply chains, Success factors, Optimization Locations China Classification 5120: Purchasing, 9179: Asia & the Pacific, 9180: International Title How procurement leaders master global sourcing Authors Byrne, Patrick M Publication title Logistics Management (2002)

Volume 44 Issue 11 Pages 26,28 Number of pages 2 Publication year 2005 Publication Date Nov 2005 Year 2005 Section Byrne on EXCELLENCE Publisher Reed Business Information, a division of Reed Elsevier, Inc. Place of Publication Highland Ranch Country of publication United States Journal Subjects Business And Economics--Marketing And Purchasing, Transportation ISSN 15403890 Source type Trade Journals Language of Publication English Document type Commentary Document Features Graphs Subfile Sourcing, Purchasing groups, International, Polls & surveys, Supply chains, Success factors, Optimization ProQuest Document ID 197217010 Document URL http://search.proquest.com/docview/197217010?accountid=13211 Copyright Copyright Reed Business Information, a division of Reed Elsevier, Inc. Nov 2005 Last updated 2010-06-06 Database ABI/INFORM Complete