200711 global sourcing ion
TRANSCRIPT
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THE GLOBAL eMARKETPLACETM
Global SourcingStrategies to Achieve Long-Term Success
Brandon Spear
Senior Vice President - Operations
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Global SourcingA Fundamental Strategic Objective
What is Global Sourcing?The business process of identifying, evaluating, negotiating andconfiguring 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 necessaryinvestments 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 intechnology and capacity to attract global business.
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Global Sourcing Strategies
1. Develop and implement a plan
2. Take a multi-country approach
3. Move more spend to Low Cost Countries
4. Develop a plan beyond cost savings
5. Create effective Local Procurement Offices
6. Develop a strategy to mitigate risk
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Global Sourcing PlanA typical approach
1.Recognize
the needfor globalsourcingand LCCopportunities
2. EstablishGlobal SourcingSteeringCommittee(includebusiness unitexecutives)
3.
Understandrequirementsand strategiesof thebusiness units
4. Identifyopportunities toleverage andstandardize on aglobal sourcingprocess
5. Prioritizeopportunities (typicallybycommodityand/orprocess)
6. DevelopLPO andintegratewith crosslocational /functionalcommodity
teams
7. Achieveconsensusandcommunicate globalsourcingstrategies
8. Establish alignedapproaches andprocesses
Procurementsystems
Metrics Teams
9.Executesourcingstrategies asappropriate
10. MeasurePerformance
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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
Brazil, 8%
Argentina, 9%
Mexico, 10%
India, 14%
China, 23%
Poland, 12%
Czech Rep, 14%
China, 19%
Hungary, 10%
USA EU
Weighted preference of top low-cost countries
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 thenext 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 of3%
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, companiesshould 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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THE GLOBAL eMARKETPLACETM
THANK-YOU
Brandon Spear
Senior Vice President - Operations
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Quadrem can support your program
Global Resources Supplier search in targeted regions
Global/local sourcing teams to help with managing sourcingprocesses
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 ch
ecks Global procure-to-pay transaction platform to connect suppliers to
your ERP system