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Global SourcingStrategies to Achieve Long-Term Success

Brandon Spear

Senior Vice President - Operations

bspear@quadrem.com

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.

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

Global Sourcing PlanA typical approach

1. Recognize the need for global sourcing and LCC opportunities

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

3. Understand requirements and strategies of the business units

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

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

6. Develop LPO and integrate with cross locational / functional commodity teams

7. Achieve consensus and communicate global sourcing strategies

8. Establish aligned approaches and processes

• Procurement systems• Metrics• Teams

9. Execute sourcing strategies as appropriate

10. Measure Performance

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 practiceA Multi-Country Approach is Leading practice

Emerging MarketsMulti Country Approach

Brazil, 8%Brazil, 8%

Argentina, 9%Argentina, 9%

Mexico, 10%Mexico, 10%

India, 14%India, 14%

China, 23%China, 23%

Poland, 12%Poland, 12%

Czech Rep, 14%Czech Rep, 14%

China, 19%China, 19%

Hungary, 10%Hungary, 10%

USA EU

Weighted preference of top low-cost countries

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 significantCost 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 PracticeEstablish a local Procurement Office is Leading Practice

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

Local Procurement Office – Cont’dCapabilities 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 – Cont’dCapabilities 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

LPO’s 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

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THANK-YOU

Brandon Spear

Senior Vice President - Operations

bspear@quadrem.com