From SCDigest's On-Target e-Magazine
- Jan. 28, 2014 -
Supply Chain News: Building a Dynamic Sourcing Footprint
Part 2 of Our Review of New "Procurement 20/20" Book from McKinsey
SDigest Editorial Staff
A variety of forces are creating an imperative for global companies to build a dynamic sourcing footprint - and procurement is naturally enough in perfect position to lead that charge.
Two weeks ago, SCDigest published an introductory review of the new book Procurement 20/20, from a quartet of consultants from McKinsey (Peter Spiller, Nicolas Reinecke, Drew Ungerman, and Henrique Teixeira). That article focused on the size of the opportunity that can be result from procurement leadership, accordng to McKinsey, and the key attributes that the book says define those leaders. (See New Book from McKinsey Says the Opportunities from Procurement Excellence are Huge.)
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"By developing their footprints across a range of functions in emerging markets, multi-national companies can generate savings of up to 25%," McKinsey says. |
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What Do You Say?
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In part 2 of our review, we'll focus on the concept of the dynamic sourcing footprint, which is a key theme of the book.
The decade where the easy answer was "go to China" is at an end, McKinsey says. Now, a growing number of factors need to be considered in sourcing decisions, including lead times, logistics costs, currency swings, regulations, the political environment and more.
"Product cost, though still a primary factor, is now longer the principal factor," the book notes.
Another complicating factor is the relationship between entering or expanding business in a market and sourcing there as well. Localization of product offerings, in-country rules relative to local sourcing content, and using sourcing relationships as a springboard to selling locally can all change sourcing decision dynamics.
While most companies understand all these sourcing decision variables, "few companies react dynamically to redefine their optimal sourcing footprints... so that they can capture the full range of opportunities with respect to cost and capabilities," the authors say. "The procurement organization is naturally positioned to lead the effort to develop and manage a dynamic sourcing footprint."
To be clear, this sourcing footprint does not apply only to traditional procurement of materials, components, etc. It also includes decisions about where to place R&D, product development and other functions that are increasingly being located across the globe.
"By developing their footprints across a range of functions in emerging markets, multi-national companies can generate savings of up to 25%," McKinsey says. "New talent pools can be found throughout the world."
Adding to the mix is the continued growth in outsourcing, as companies look not only to reduce overhead costs but also leverage increasingly specialized expertise. This of course is especially true in the area of logistics. but in other areas as well.
What CPO's Need to Do
What skills do chief procurement officers need to develop, adn what steps do they need to take to build a dynamic sourcing footprint?
McKinsey details three key capabilities:
(1) Build "Convening Power" to Drive Integrated Decision-Making Across Functions: CPOs need not only work very collaboratively with their executive peers, they must demonstrate deep knowledge and insight that is seen as very valuable to different functional groups.
(Sourcing and Procurement Article Continues Below)
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"For example, CPOs must generate insights into how factors such as the development of a supply base, the fluctuations of currency, and the changes in export and import tariffs affect the cost advantages of establishing a manufacturing footprint in a particular country," the authors say.
