| Global sourcing has become less a strategic | | | | purchasing outweigh the increase in operational costs |
| advantage and more a competitive necessity. Fierce | | | | and risks. Moreover, incentives and performance |
| competition is driving many companies to source in | | | | measures should be adapted as inventory costs and |
| low cost countries. The expectations of more return | | | | logistics costs will rise. Organizational adjustments will |
| on investment combined with increased competition | | | | be needed to deal with the new risks of managing |
| drive executives to seek reductions in expenditures, | | | | suppliers in China. A step by step approach enabling |
| making an immediate and direct impact on the | | | | managers to learn gradually about the new methods |
| bottom line. At the same time, they are challenged to | | | | of selecting vendors, negotiations, and logistics will |
| maintain service levels and prevent any loss of | | | | help minimize the pains of the transition phase. |
| control. | | | | The capabilities that need special attention when |
| Many Western companies are eager to source | | | | sourcing directly include quality assurance and control, |
| Chinese parts and products in order to achieve these | | | | logistics coordination, and satisfying customs |
| goals. Retailing giants such as Carrefour are buying an | | | | regulations. Quality assurance and control start with |
| expanding range of Chinese-made goods for up to | | | | an in-depth assessment of pre-selected suppliers |
| 40% less than the cost of comparable goods made | | | | against the company's specific criteria. During this |
| in developed countries. Driven by a continual margin | | | | assessment companies may want to gain more |
| squeeze, an increasing number of industrial players | | | | insight into the suppliers' production processes, quality |
| also found their way to source basic chemicals and | | | | procedures, R&D activities, current client base, |
| commodities, small machining, molds, packaging and | | | | financial stability, and due diligence. Quality |
| much more in China. Ford Motors, for example, has | | | | management is a continuous process. Once a suitable |
| spent considerable effort to source more parts in | | | | supplier has been recruited and contracted, its |
| China, but still those goods represent only a fraction | | | | performance needs to be measured consistently. This |
| of the components used in their vehicles. Aware of | | | | insight enables companies to optimize supplier |
| the savings opportunity of sourcing half of their basic | | | | interaction and performance, and thus improve |
| parts in China, they plan to vastly increase their | | | | product and service quality and delivery. The logistics |
| purchases of China-made components. Although the | | | | activities include packing, managing inventory and |
| opportunity is certainly enticing, the current stage of | | | | consolidation, inspecting container loading, arranging |
| development creates skepticism about the ability to | | | | shipments and satisfying customs regulations. Many |
| get right the many pieces of a sourcing operation in | | | | activities have to be managed and many detailed |
| China. Some companies reportedly did not meet their | | | | decisions have to be made while sourcing in China. |
| target volume of sourcing in China, largely because | | | | Small details, which are obvious in Europe, can go |
| the job of evaluating suppliers and establishing and | | | | wrong. Hence, a hands-on approach is required to |
| managing supply chain connections was more | | | | monitor the supply base and take quick action when |
| complex than the companies had understood. | | | | corrective measures are necessary. Control is a vital |
| The emergence of sourcing portals and specialized | | | | element to successfully capitalize in China. |
| sourcing fairs has facilitated searching suppliers in | | | | Taking these issues into account, companies can lay |
| China. Procurement managers will probably find | | | | a foundation to enable the relocation of bigger and |
| numerous suppliers that comply with their | | | | more crucial pieces of their supply chain operations. |
| requirements at first sight. With an attractive website | | | | Companies may find it appropriate to bring in |
| or boot and a convincing sales proposition suppliers | | | | consultancy services during the transition stage, |
| may convince companies of their professionalism. But | | | | assisting them in establishing effective sourcing |
| finding high-quality suppliers and negotiating | | | | capabilities. These parties help identify reliable |
| agreements with them are problems many | | | | suppliers, provide quality assurance and control, |
| companies face. Difficulties ranging from due diligence | | | | perform logistics activities and help recruiting |
| or intellectual property infringements and customs | | | | personnel. This enables companies to set up sourcing |
| delays to poor communication make the sourcing | | | | offices in China, reduce reliance on traders and thus |
| opportunities less appealing. Moreover, the | | | | gain control and capture savings. Companies seeking |
| widespread use of trading companies does not offer | | | | to drive more value out of procurement are |
| the transparency companies need in order to monitor | | | | considering the outsourcing of selected product |
| the process. Additionally, there are issues such as | | | | groups and procurement processes, and in this way |
| cultural and language differences that companies | | | | leveraging third party knowledge and experience with |
| rarely face at home. | | | | sourcing in China. Unlike traders, these procurement |
| Many companies have fallen into traps because they | | | | managed service providers represent your company |
| only consider the cost factor instead of realizing that | | | | in China, giving the company the transparency, |
| global sourcing is only effective when it involves the | | | | control and savings that should be expected. |
| evaluation of all factors including the cost of | | | | Sourcing in China can certainly create a real |
| materials, transportation, inventory carrying costs, | | | | competitive advantage, but this does not happen |
| taxes and tariffs, quality and operational risks. | | | | overnight. A company that wants to build value for |
| In order for companies to benefit from China's | | | | the future should start to lay the foundations today. |
| unrivaled potential as a global sourcing center, they | | | | Of course, every structure is unique and needs more |
| should first deal with a few important internal | | | | than foundations alone but these are the |
| stumbling blocks that may slow down the whole | | | | prerequisites for success. Considerable time and |
| setup. A prerequisite for success is for top | | | | effort should be spent first to lay the foundation, but |
| management to understand this broader picture and | | | | those who place their stones in a thoughtful way can |
| sell it internally, making a persuasive case for their | | | | create value and competitive advantage for the |
| sourcing strategy in China. Middle management should | | | | future. |
| be convinced that the benefits of lower-cost | | | | |