Boston Consulting Group on China Sourcing, Part II

October 31st, 2007 at 04:24am David Bush - Iasta

Last week, in Part I, I brought your attention to a recent publication from the Boston Consulting Group, Sourcing From China – Lessons from the Learners that contained an exhibit that described the four stages of successful Low Cost Country Sourcing:

1. Test the Waters
2. Early Engagement
3. Full Integration
4. Make the Low Cost Country a Center

In response to the post, a reader asked about the effectiveness of e-Sourcing applications in each of the four stages. In this post I am going to provide some insights on how I think e-Sourcing can assist with each stage.

Stage 1: Testing the Waters
In this stage, a company sets up a Low Cost Country sourcing office, rolls out pilot projects, develops processes, generates early results, and gains buy in.

In this stage, standard spend analysis, e-RFx, and e-Auction play a very strong roll. Basic spend analysis is used to identify low-hanging-fruit high-spend commodity categories that can be turned into quick wins, multi-stage e-RFx is used to quickly identify a set of potential suppliers, which are then qualified in successive stages, and e-Auction is used among the qualified suppliers to drive the price down to true market price and get a quick win that can be used to generate buy-in for future effort.

Stage 2: Early Engagement
Expansion occurs through multiple waves as the supply market dynamics are understood, processes fine-tuned, capabilities expanded, and IP protection addressed.

In this stage, more of the high-spend categories that were not addressed in stage 1, either because they were not likely to generate quick wins through standard e-Auctions or because the items were somewhat customized in nature are addressed. e-RFx is still used heavily, but more advanced cost models and basic award decision optimization is brought into play as multiple factors are considered in the award allocation. The advanced collaboration and document control capabilities of the platform are used to insure that only authorized users have access to sensitive IP, which is revoked if a potential supplier does not win a contract; and a contract repository is built to track contract terms and conditions.

Stage 3: Full Integration
In this stage, Low Cost Country sourcing is integrated into the company’s global procurement process, suppliers are included in the design process, and the Low Cost Country is integrated into the extended global supply chain.

In this stage, the full capabilities of a true spend analysis tool are used to identify all possible savings opportunities, advanced decision optimization is employed to make sure that the buy makes sense in terms of the network (as transportation costs and late shipments can cost more than the projected savings associated with an item on a unit cost basis), the contract T’s and C’s are tracked in the e-Procurement system to make sure all invoices are n-way matched and negotiated savings immediately realized (and alerts sent out if something is wrong), and supplier management technologies, particularly in the area of performance and enablement are introduced.

Making the Low Cost Country a Center
The Low Cost Country becomes a critical supply base, some procurement functions are migrated to the Low Cost Country office, and suppliers become an integral part of the company’s product-development system.

This goes beyond a full end-to-end e-Sourcing suite and into proper structure and management of the procurement function. Without a good strategy, organization, leader, and processes, an e-Sourcing suite won’t save you. However, if everyone is done right, it’s the key to unlocking the savings you identify.

As a final note, this advice, as well as the advice from the Boston Consulting Group, applies to any Low Cost Country, not just China!

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Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Supply Management Best Practices, Technology / SaaS