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  1. 1. Supply Chain Management Viewpoint High performance through sourcing Leveraging a supply management platform for low-cost country sourcing By Julien Pleska, Accenture, and John Webster, Emptoris Although sourcing from low-cost economies is an established fact, how best to fully leverage the opportunities it offers remains obscure. The use of a supply management platform can bring compelling value to a purchasing organization by helping it overcome some of the added complexity that is inherent in the definition and execution of a low-cost country sourcing initiative. By improving coordination among different buyers and suppliers, industrializing the sourcing process, and acting as a central knowledge base to store and share all supply-related data, supply management platforms add a dimension of stability and certainty to low-cost country sourcing that is often lacking.
  2. 2. Supply Chain Management Viewpoint Sourcing from low-cost economies is an established fact. However, how best to fully leverage the opportunities it offers remains obscure: While many companies have shown that they can successfully source from low- cost economies on a category-by-category basis, far fewer have institutionalized their overseas sourcing to the point where it becomes routine and "business as usual." In one sense this is not surprising. While challenging, the problem is not the effectiveness of their procurement Successful sourcing from low-cost insurmountable. Category by category, functions and, ultimately, achieve economies involves addressing a and product by product, managements higher levels of performance through number of distinct challenges—and can and do rise to the challenge: supply chain mastery. While sharply not just one at a time, but together. Decisions are made and contracts reducing the cost of acquisition for In unfamiliar markets, companies issued. But was it the best decision? a wide range of goods and services, must identify suitable vendors and be Is the solution truly optimal? The supply management platforms assured not only of vendors' potential larger the category and the greater the simultaneously free up management reliability of supply and the quality of variability in the supplier base, the more time for more strategic activities. the products that they provide, but difficult it is to know with certainty When it comes to sourcing from low- also of the rigor and capability of their that the best possible deal has been cost economies, however, these internal processes. made. Making a deal that's considered platforms are not being utilized to acceptable is straightforward. Making Worse, the decisions companies must their best advantage. The resulting a deal worthy of a high-performance make are rarely clear-cut. Improved irony is that even as companies business is an altogether more quality may go hand-in-hand with struggle to engage with low-cost complex challenge. better reliability of supply, or it may country suppliers, the tools that they not—a tradeoff may be involved. And Yet it does not have to be. The use need are already in place. It is the while increasing the pool of potential of supply management platforms is corporate equivalent of buying a vendors may uncover intriguing new becoming commonplace across state-of-the-art hi-fi system—and then alternatives to consider, it also equally businesses. This trend is not startling only using it to listen to the radio. increases the complexity of the given that such platforms play a comparisons and "what if" analyses fundamental part in enabling entailed in the decision process. businesses to dramatically improve 2
  3. 3. High performance through sourcing 3
  4. 4. Supply Chain Management Viewpoint A robust supply Under the hood: help to structure the sourcing process How a supply management around well-defined projects and management platform platform works templates where roles, responsibilities, can bring a number Let's first review what a supply tasks and deadlines are all clearly outlined and structured. of benefits to a management platform actually does. Second, during the actual sourcing In essence, its purpose is simple: purchasing organization manage the front-end source-to- phase, the platform can ensure that in pursuit of low-cost contract process to help enterprises all steps are clearly documented and recorded, which helps make the process achieve better compliance and country sourcing. performance across their supply base. repeatable and can lead to shorter sourcing cycle times. Finally, once the Typically, enterprises begin the process business has been awarded, the platform with spend analysis, determining what enables an enterprise to monitor they buy and whom they buy it from. compliance with negotiated contracts This analysis helps them understand by measuring supplier performance over and prioritize potential savings the life cycle of the relationship. With opportunities. With the size of the divergent geographies, time zones, prize understood, they then develop a languages and cultures, the role played sourcing strategy that will bring these by a supply management platform is opportunities to fruition and venture invaluable. into the marketplace to identify potential suppliers. From there, a Yet some of these advantages become process of supplier qualification and even more critical in the context of negotiation takes place, leading to low-cost country sourcing. In particular, decisions around which spend is the platform actively helps businesses awarded to which supplier. Ideally, the with three of the thorniest problems awarding process takes into account incurred when venturing into low-cost not only reducing the landed cost, but country sourcing: finding suitable also the total cost of ownership— vendors, evaluating multiple offers and balancing cost, performance and risk. handling the challenges involved in day-to-day management—again within Once suppliers are selected and an environment of widely divergent business is awarded, the enterprise geographies, time zones, languages establishes contracts and deploys and cultures. Let's look at each of processes to ensure operational and these in more detail. regulatory compliance. Spend, contracts and procurement controls Identifying suitable vendors are continually monitored across the While the use of intermediaries such selected supply base to drive down risk as local agents or the establishment and identify additional opportunities of international procurement offices for greater savings and efficiency is far from unknown, the vast majority going forward. of companies buying from low-cost countries choose to purchase directly Going global: from the supplier. By automatically keeping track of all the suppliers that How a supply management ever responded to a request for platform helps information, a supply management A robust supply management platform platform facilitates the supplier can bring a number of benefits to a discovery process by creating a central purchasing organization in pursuit of database of suppliers—both qualified low-cost country sourcing. First, it can and yet-to-be qualified—that can be 4
  5. 5. High performance through sourcing tapped into on an ongoing basis as for quotations (RFQs), and then A supply management platform can the organization's supply needs change analyzing the implied costs and trade- help ease day-to-day management and evolve. offs contained in multiline item bids issues by coordinating the end-to-end from hundreds of vendors in a matter sourcing process; facilitating the A supply management platform is also of minutes. effective sharing of information useful during the supplier qualification between buyers and suppliers; and and audit phase, where satisfactory In addition to analyzing expressive providing a centralized, globally assurances of quality and supply supplier pricing schedules such as accessible, single source of the truth reliability must be obtained. bundled pricing, unit volume discounts for all activities contained within the Establishing standard electronic and business volume discounts, the sourcing and evaluation process. questionnaires and evaluation forms evaluation can include item that can be shared and completed substitutions and component lotting One way the supply management collaboratively with suppliers, cross- strategies, as well as variations in item platform can help, for example, is at functional assessment teams or third- specifications—such as color, quality the very beginning of the process by party accreditation services enables and tolerance—while simultaneously clearly identifying the required tasks, enterprises to quickly and cost- factoring in supplier capabilities and responsibilities and deadlines, and effectively gather feedback, irrespective constraints like capacity limitations, making these visible to every participant of where the reporting party is located. financing terms and historical supplier in the process—both outside and Again, the result is to help build a performance metrics. inside the organization. This includes database of approved suppliers that not just those departments that are Better still, supply management can be quickly and economically inside the firewall, such as engineering, platforms provide an excellent vehicle leveraged at any time in the future. quality, production and logistics, for evaluating the additional cost drivers but also suppliers, international Evaluating offers associated with sourcing from low- procurement offices and third-party Even within a purely domestic context, cost economies, such as transportation, accreditation services. disentangling the complexities of tariffs, longer lead times and additional correctly evaluating multi-item offers inventory holding—all of which can The enhanced sharing of information from multiple potential vendors can lead to a more complex total landed such as specifications and technical prove a challenge. This is particularly cost model. drawings is another useful advantage, true when suppliers make so-called providing timely and up-to-date data In short, by enabling the buying team "expressive" or "combinatorial" bids at every stage in the process—again, to conduct scenario-based "what if" and detail alternative pricing they both internally and externally, and sensitivity analyses to quantify the could offer if, for example, quantity, from the initial design phase right impact of various purchasing specification or delivery requirements through to the contract award phase. alternatives and trade-offs associated were varied or if bundles of items with the complexities of sourcing Finally, supply management platforms could be bid for as a single lot. When from low-cost economies, companies can also help measure the progress of dozens of vendors offer competing can be assured that their sourcing sourcing projects by offering a variety bundles of items at varying prices and decisions are not just broadly correct of tools and monitoring techniques, price breakpoints, picking out precisely but truly optimal. from management dashboards to the best combinations of offerings exception-based alerts. Such benefits that yield the lowest total landed cost Day-to-day management are even more relevant to companies becomes a complex business. If evaluating multiple offerings is that decide to establish dedicated complex, so too is the challenge of overseas sourcing organizations, such Although an enterprise can certainly managing the coordination and as an international purchasing office, make a reasonable evaluation despite communication that must occur among where the establishment of a well- these complexities, it is equally likely participants in the process. To further understood process and clearly that any human judgment will fall complicate matters, participants in defined roles and responsibilities are short of being truly optimized. It is low-cost country sourcing are not only especially critical. precisely this optimization that a spend likely to be geographically dispersed, management platform can undertake, but also characterized by very different collecting competing optimization backgrounds, languages and cultures. scenarios through auctions or requests 5
  6. 6. Supply Chain Management Viewpoint Case studies Food products company suppliers to the point of meaningful Participating first in an initial RFQ negotiations was seen as too time- prior to the final competitive reverse So how does a supply management consuming—a prospect exacerbated auction event, the purchasing platform work in practice? Take the by language barriers. organization determined that sourcing example of a major US food products strawberries from China presented a company, which for many years The Emptoris supply management 24 percent savings opportunity. In a sourced strawberries from Californian platform, equipped with a broad range competitive market experiencing and Chilean producers and brokers. of languages including Mandarin, was ongoing margin pressure, that was Although the company was aware of able to help the company overcome simply too big an opportunity to miss. Chinese growers that were developing these obstacles. Better still, as online Yet without a supply management both new product varieties and negotiations were already about to platform to take advantage of the shipping techniques, it also recognized take place with its existing supplier opportunity, those savings would have that traditional approaches to base for a one-year contract intended been left on the table. sourcing presented numerous barriers to source more than 5 million pounds that prevented it from exploiting the of four different types of strawberries, opportunity. The resource requirement the platform enabled the company to involved in engaging with new invite five prospective suppliers from China into the process. Consumer durables company per unit, the percentage of scrap, the use certain incumbent suppliers while labor cost, overhead cost and packaging simultaneously constraining the total Another example involves one of the cost per part, as well as other factors number of suppliers among whom the world's largest consumer durables like manufacturing tonnage, tooling contract would be split. companies, which leveraged the costs and shipping lead time. Suppliers Emptoris supply management platform The analysis proved invaluable. For the were also allowed to offer expressive to source 352 rubber items amounting first time, the business could precisely combinatorial bids, such as bundling to $32 million in spend. Running two establish the costs associated with items together and offering volume- sourcing events in parallel—one with various sourcing strategies—for based discount schedules. its regular domestic suppliers, and a example, it was possible to determine second with 14 new prospective The supply management platform that splitting the contract among just suppliers from India and China—the was then used to model a number the five overall lowest-cost suppliers organization managed the process of "what if" scenarios, which enabled would cost 6 percent more than centrally, while also making use of the company to determine the contracting with the 25 suppliers who company personnel on the ground in consequences of different sourcing offered the best price on a product-by- India and China to facilitate activities strategies. Throughout the analysis, product basis. In all, some 27 different such as qualification. two practical considerations were kept strategies were evaluated, involving at the forefront. First, the company varying the maximum number of In the bidding process, nine diverse wanted to avoid bringing on too many suppliers, the percentage of business attributes were collated and processed new suppliers at once, recognizing remaining with incumbent suppliers, through a total cost formula for each that ramp-up costs were inevitable and the inclusion of supplier bundles item for which a bid was solicited. and needed to be minimized. Second, and volume-based discounts. These attributes included price-based in order to mitigate the risk of change, factors such as the raw material price conditions were created to continue to 6
  7. 7. High performance through sourcing Leveraging supply process in a clear manner, thereby About the authors better managing the interaction management platforms to Julien Pleska is a manager in the between supplier and buyer. Using achieve high performance such tools, both parties have time to Accenture Supply Chain Management service line. He teams with clients As impressive as the outcomes in the process information—which may be across industries to improve the adjacent case studies are, any business in a foreign language—and are not performance of their procurement seeking to emulate them must be caught up in the pressures of a live operations through process cognizant of a number of prior person-to-person negotiation, either improvement, organization development practical considerations. For example, face-to-face or by telephone. and system implementation initiatives. a supply management solution is an In summary, we believe that the use Based in Brussels, he can be reached even more powerful proposition when of a supply management platform can at it is allied with the provision of third- bring compelling value to a purchasing party services that can empower the John Webster is a Product Marketing organization by helping it overcome purchasing organization to seize Manager within Emptoris' European some of the added complexity that is opportunities presented by low-cost practice. With a strong background inherent in the definition and execution country sourcing. Typically, for example, in business process consulting, he of a low-cost country sourcing a business may want to consider third- works closely with Emptoris customers, initiative. By improving coordination party help in such areas as supplier partners and prospects across all among different buyers and suppliers, databases, local supply market industries to define innovative strategies industrializing the sourcing process, knowledge and on-site support in local for supply management technologies and acting as a central knowledge base languages for sourcing events taking and services across an extensive range to store and share all supply-related place in economies like India and China. of solutions including spend analysis, data, supply management platforms add sourcing, contract management, Historically, technology—while enabling a dimension of stability and certainty to supplier performance and compliance. supply management platforms—has low-cost country sourcing that is often Based in the UK, he can be reached presented challenges in certain regions lacking. It is critical to select a leading at or via that have been slower to adopt such solution like Emptoris that presents innovative solutions. From a technology the required functionality to tackle standpoint, for example, not all the challenges of low-cost country suppliers in emerging markets have sourcing and the potential increase in proven ready to participate in online risks, including the provision of events. These challenges can be sophisticated total cost of ownership overcome through approaches such optimization-based bid analysis. as surrogate bidding processes (where To fully leverage the opportunities the buyer or third-party service provider presented by the use of a supply places bids on behalf of the supplier), management platform, it is equally as well spreadsheet-based, easy-to-use important to select a service partner bidding interfaces. with experience both in the deployment More subtle barriers to adoption also of supply management platform exist. Language support, for example, technology, as well as in the markets is critical to ensure the success of such and industries from which the materials an initiative, hence the added value and services in question will be of a solution that offers a multilingual purchased. Well-qualified on both user-interface. Local cultures, too, are counts, Accenture is committed to often assumed to represent an obstacle collaborating with clients to help to the use of technology-supported them adapt innovatively to changing processes—although our view is that conditions, seize opportunities such as this presumption is generally mistaken. those associated with low-cost country Our experience shows that technology sourcing and achieve high performance can actually help reduce language and through supply chain mastery. cultural challenges by codifying the 7
  8. 8. This document is not intended to About Accenture Supply Chain Management provide advice specific to your The Accenture Supply Chain We collaborate with clients to organization. If you require further Management service line works with implement innovative consulting and details on any matters discussed in clients across a broad range of outsourcing solutions that align this point of view, please contact industries to develop and execute operating models to support business your Accenture representative or one operational strategies that enable strategies, optimize global operations, of the document’s authors. profitable growth in new and existing enable profitable product launches, markets. Committed to helping clients and enhance the skills and capabilities achieve high performance through of the supply chain workforce. For supply chain mastery, we combine more information, visit global industry expertise and skills in supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management to help organizations transform their supply chain capabilities. Copyright © 2007 Accenture About Accenture About Emptoris All rights reserved. Accenture is a global management Emptoris is the world leader in Accenture, its logo, and consulting, technology services and innovative supply and contract High Performance Delivered outsourcing company. Committed to management software solutions that are trademarks of Accenture. delivering innovation, Accenture empower enterprises to realize best collaborates with its clients to help value and accelerate profitable them become high-performance growth. Emptoris solutions are used businesses and governments. With by successful Global 2000 companies deep industry and business process in every industry. Customers include expertise, broad global resources and American Express, Boeing, Dow a proven track record, Accenture can Corning, GlaxoSmithKline, Motorola, mobilize the right people, skills, and Owens Corning, Samsung America, technologies to help clients improve Toro and Vodafone. their performance. With approximately 146,000 people in 49 countries, the company generated net revenues of US$16.65 billion for the fiscal year ended Aug. 31, 2006. Its home page is