THE GLOBAL eMARKETPLACE TM

Global Sourcing
Strategies to Achieve Long-Term Success

Brandon Spear
Senior Vice President - Operations
bspear@quadrem.com

Global Sourcing
A Fundamental Strategic Objective

What is Global Sourcing?

The business process of identifying, evaluating, negotiating and
configuring supply chains across multiple suppliers and geographies

Common Reasons for a Global Sourcing Strategy

Reducing overall cost structure

Availability of new technology and capacity. Often domestic
suppliers lack capacity and / or are not making the necessary
investments to stay competitive.
Establishing alternative sources of supply reduced risk.
Access to new designs or specialized intellectual capital.
Superior quality. This is typically due to supplier investment in
technology and capacity to attract global business.

Global Sourcing Strategies

1.
2.
3.
4.
5.
6.

Develop and implement a plan

Take a multi-country approach
Move more spend to Low Cost Countries
Develop a plan beyond cost savings
Create effective Local Procurement Offices
Develop a strategy to mitigate risk

Global Sourcing Plan

A typical approach

2. Establish Global
Sourcing Steering
Committee (include
business unit
executives)

1. Recognize the
need for global
sourcing and LCC
opportunities

4. Identify opportunities to
leverage and standardize
on a global sourcing
process

5. Prioritize
opportunities
(typically by
commodity and/or
process)

8. Establish aligned
approaches and processes
Procurement systems
Metrics
Teams

9. Execute
sourcing
strategies as
appropriate

3. Understand
requirements and
strategies of the
business units

6. Develop LPO and

integrate with cross
locational /
functional
commodity teams

10. Measure
Performance

7. Achieve
consensus and
communicate global
sourcing strategies

Emerging Markets
Multi Country Approach

China is the primary Low Cost Country (LCC)

But near shore countries need to part of strategy
Brazil, Mexico and Argentina are viable markets and
closer to US based companies
Eastern Europe is growing and EU allows for free trade
across borders

A Multi-Country Approach is Leading practice

Emerging Markets
Multi Country Approach

Weighted preference of top low-cost countries

Brazil, 8%
Argentina, 9%
Mexico, 10%

Hungary, 10%
Poland, 12%

India, 14%
Czech Rep, 14%

China, 23%

USA

China, 19%

EU
Accenture Survey 2004

Financial Benefits
Increasing Procurement Spend in LCC

Leading Companies expect to double the spend volume in LCC over the
next 3 years, from 14% to 28%
Increase in overall savings expected to be ~10%

Benefits

Cost reductions averaging 19% from 14% to 28%

Total Cost of Ownership reductions averaging 12%

Downside

Inventory Investment increase of 3%

Increased Transportation / Logistics cost 2%

Cost reduction benefit is significant

Moving Beyond Cost

After cost saving companies need to:

Ensure new suppliers will last over time

Help new suppliers to grow with you
Add new suppliers for additional products

How?

Evaluate total value and total cost of global sourcing decisions

Find personnel with worldwide knowledge and skills
Increase visibility of available sourcing data
Enhance knowledge of available global suppliers
Make global sourcing part of overall company operations

Establish a local Procurement Office is Leading Practice

Local Procurement Office

Capabilities to achieve success

To conduct effective Global Sourcing, companies should

establish a Local Procurement Office (LPO)
Step 1: LPO must have these fundamental capabilities:

Supplier Market Research

Supplier Identification & Qualification
Savings Opportunity Identification
Quality Inspections
Logistics Planning and Execution
Supplier Database Development
Integration into the procurement organization

Local Procurement Office Contd

Capabilities to achieve success

Step 2: To materialize the saving opportunities the LPO

should have transactional capabilities:

Execute bidding processes

Establish and provide Logistics Management
Procurement transactions
Contract and project management
Invoicing and Payments

Local Procurement Office Contd

Capabilities to achieve success

Step 3: To maximize and maintain saving, the LPO

should have advanced capabilities:

Category management
Develop supplier market strategies
Inventory management
Procurement and Sourcing training

Risk Mitigation

Global Sourcing is not without risks

Lengthened supply lead times

Increased transportation and logistics costs
Supplier delivery concerns
Supplier quality
Intellectual property
Lack of supplier responsiveness
Language issues

Risk Mitigation (cont.)

Risks are manageable with time and resources

LPOs must work closely with global suppliers

Establish risk mitigation strategies

Dual source with low-cost suppliers (80% to one supplier,
20% to another)
Use low-cost supplier and on-shore supplier
Ramp-up supply with new low-cost supplier

Pick the right products for low-cost suppliers

Should have high labor cost component to outweigh risks

Summary

Worldwide competition is increasing Global Sourcing

Companies are looking at 31 40% of annual expenditure

China is the primary country but near shore is viable

Brazil, Mexico, Argentina, Eastern Europe

A corporate strategy for Global Sourcing is critical

The LPO is critical to creating and maintaining benefits

Must be integrated into core procurement organization

Questions

THE GLOBAL eMARKETPLACE TM

THANK-YOU

Brandon Spear
Senior Vice President - Operations
bspear@quadrem.com