How to Get More from China Sourcing
Article by Anthony Collier
China sourcing is already a very large industry, but it's going to become much larger. In China, there is a real requirement to increase the capabilities for procurement, especially in adapting standard sourcing practices worldwide and the tools to source more products at lower prices, doing away with the organizational barriers that are stymieing efforts to achieve more, and setting greater aspirations for sourcing.
Setting aspirations high is the first principle to become the best at execution in China. The multinational companies (MNCs) aren't meeting this aspiration. On the face of it, this might seem strange. There simply can't be a single person left in the US or Europe who doesn't know that China is a primary supplier to businesses and retailers in developed marketplaces.
However, what the woman or man on the street in Beijing, Bremen, and Boise probably doesn't know is that global businesses could source considerably more from China than they are currently. Recently, an assessment was completed of procurement operations of ten different industries, including retailing, high tech, and automobile parts manufacturing. It was determined that MNCs who are usually sourcing globally only use approximately one third of the products that they believe they could probably source from China, and are only receiving approximately one fourth of the potential savings. The reason for this is that they know that they're receiving far better prices than that could in the US, but they just don't know just how low prices are going to be in China yet.
There is a considerable amount of value being left on the table by these global businesses. They are just not setting their aspirations high enough for the amount of sourcing operations that they can achieve for their businesses, both in globally and in China. Without a doubt, there are numerous supply and procurement difficulties that have to be faced like overcoming logistics problems; communicating with procurement, design, and engineering! manager s; managing the supply chain inventory; ensuring reliable deliveries; increasing the supplier's quality; overcoming culture and language barriers, and; identifying good suppliers.
The executives of the MNCs in China know that the sourcing difficulties that they face aren't the real reason that businesses' sourcing levels are less than what they could be. The real reason is that they aren't setting their aspirations high enough. From their global headquarters on down and therefore the business isn't placing the resources or the focus to be successful.
The global retailers should increase their aspirations for placing Chinese products on the shelves of retailers around the world. Oftentimes, retailers are sourcing lower volumes of products of what they are capability of. In addition, many retailers source considerable categories through agents. Retailers in Europe and the US save an average of between 15% and 35% across all categories by buying products that are sourced in China through agents. In China, the few retailers that do their own purchasing directly from the manufacturers save a minimum of an additional 10% to 15% over what agents get there, and oftentimes more than that.
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