Global Sourcing Strategies to Achieve LongTerm Success

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Global SourcingStrategies to Achieve Long-Term
Success

• Brandon Spear
• Senior Vice President - Operations
• bspear_at_quadrem.com

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Global SourcingA 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.

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Global Sourcing Strategies

• 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

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Global Sourcing PlanA typical approach
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Emerging MarketsMulti 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
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Emerging MarketsMulti Country Approach
Weighted preference of top low-cost countries
Brazil, 8
Argentina, 9
Hungary, 10
Mexico, 10
Poland, 12
India, 14
Czech Rep, 14
China, 23
China, 19
USA
EU
Accenture Survey 2004
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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
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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
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Local Procurement OfficeCapabilities 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

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Local Procurement Office ContdCapabilities 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

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Local Procurement Office ContdCapabilities 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

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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

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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

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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

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Questions
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THANK-YOU

• Brandon Spear
• Senior Vice President - Operations
• bspear_at_quadrem.com

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Quadrem can support your program

• Global Resources
• Supplier search in targeted regions
• Global/local sourcing teams to help with managing
  sourcing processes
• RFQ, RFI, negotiations, spend analysis
• Resources to support your LPO
• Sourcing and Procurement Tools
• Electronic RFQ, RFI and negotiation tools
  available in multiple languages
• Spot buy application to conduct price and
  availability checks
• Global procure-to-pay transaction platform to
  connect suppliers to your ERP system