Driving Value with Global Sourcing Oshkosh WI

Global sourcing is unavoidable in today's flat world, but it's a highly complex undertaking. Strategic sourcing demands that companies align what the customer wants, what's best for the business, and what's needed to get the supply. And they need to do this while dealing with the inherent intricacy of navigating global suppliers, inventory, cultural differences, currency, time zones, connectivity, language, and supply chain requirements. It can't be done without help.

Technology Eases the Pain

E-sourcing technology is vital in coping with the global sourcing challenges. Firms that adopt e-sourcing can save up to 25 percent of their costs compared to traditional or basic sourcing approaches. The technology assists in the workflow processes of request for information/proposal/quotes, optimization of bids and plans, and, if it is a full suite, can track the sourcing plans into contract execution and performance. It is what makes global sourcing possible. Yet 38 percent of companies, in a recent AMR Research survey, lacked e-sourcing technology. And of those that did have it, 27 percent couldn't make much use of it across the organization.

Global sourcing demands a holistic strategy that must be based on a cost-to-serve model linked to analytics to support fact-based decision making.

To some degree, the existing technology service providers and business process outsourcing companies can assist in the analysis, planning, and execution of global sourcing strategies. But global sourcing leaders want more. They are looking toward an end-to-end workflow and event-driven process across sourcing, engineering, risk management, and supply network platforms to support these efforts.

Some companies are making progress along these lines. However, the ability to access predefined, real-time analytics, optimize the data inputs, select preferred scenarios, and show the total cost and risk models based on all the elements is still a long way off for most, if not all, organizations. The ultimate goal of global sourcing is a true modeling platform, performing current and what-if or future projections based on known or anticipated change elements.

Becoming Part of the Value Chain

Technology alone is not enough, either. Companies must alter their entire philosophy and elevate sourcing to the top tiers of their corporate strategy if they expect to create a successful global sourcing strategy. Companies that invest in global sourcing do so to improve operational performance and align with the CEO's objectives: improving profit margins, freeing up and increasing working capital, and reducing and containing the costs of goods and services.

To get to that point, they all keep in mind that successful demand-driven supply management starts with a clear understanding of a company's business strategy and follows with the organizational design to best fulfill the business goal. Many have appointed a Chief Procurement Officer (CPO), Chief Supply Chain Officer (CSO) or an equivalent Vice President of Procurement to drive those results.

Many companies with successful global sourcing objectives have not only lowered their overall supply costs, but also pioneered innovative supply partnerships enabling value-driven transformation (see Exhibit 1). But obtaining these results means having a robust plan and then executing to make a difference.

Strategy Alignment Key to Success

Success depends on alignment of sourcing with the company's overall growth and market strategy. Alignment of business strategy and value chain requirements will quickly lead to an aligned strategy for sourcing of supply. The top companies identify requirements, review current and potential supply partners and put plans in place to explore various options. Supply plan, on-going supplier development, and continuous program expectation reviews are critical.

Supply Plan The supply plan may include local, near, and far shore suppliers. A review of capabilities, performance, and total cost should be conducted on each supplier, along with scenario modeling for risk mitigation.

Consider the case of a $4 billion high-tech company that based its sourcing strategy on the location of its facilities and distribution operations. The company needed local sources for its main engineering sites for quick turns and building out prototypes, yet it also needed Far East suppliers for lower costs and because they were close to manufacturing sites.

To facilitate these efforts, the company worked closely with two sources: one in the US and one in Asia. This then became a partnership between all three companies that allowed the high-tech manufacturer to work tightly locally and internationally while still meeting full product cost and quality requirements. Such a multiple sourcing channel strategy ensured reliable supply, mitigated supplier location risk, improved working capital, and lowered and contained costs.

Supplier Development Successful supplier deployment isn't dependent on where the supplier is located; what matters is having a local team near the supplier. Many multi-national companies have established regional International Procurement Offices (IPOs) to help select and execute the supply plan. AMR Research finds that companies that have a local IPO or a service partner working with suppliers are more efficient in their processes and have fewer supply disruptions than those without localized supply management expertise.

Sourcing Program Reviews An effective global sourcing strategy is a plan, executed with successful results. And success means continuous refinement of expectations versus results. The most successful program reviews include sales, marketing, operations, product management, engineering, quality and sourcing. The review process consists of the following elements:

• Performance to plan
• Total cost of ownership for each 'shoring' segment
• Successes, near misses and misses
• Identified gaps
• Improvement plans for gaps and misses
• Definition of success
• Contingency plans for risk mitigation.

The Bottom Line

Understanding and aligning with the business strategy and its many dimensions and then executing is the key to global sourcing success. Having a supply and supplier development plan coupled with low cost country sourcing initiatives and key enabling technology will mean the difference between success and failure in the transformation to value driven supply management.