The status of China sourcing
China ’s rapid rise as a low cost manufacturing hub for top quality products has made many companies from around the world rush into this market for production of their goods.
As a short-term measure, companies might redesign their performance incentives in order to encourage purchasing managers to buy goods from China. One retailer introduced “incubation” incentives to motivate its buyers, rewarding them with bonuses for the volume of products they sourced there.
What approach will Chinese manufacturers choose?
In addition, executives must find ways to minimize the pain of process changes and to make them acceptable quickly. One manufacturer began by using its existing processes to select, approve, negotiate with, and manage vendors instead of setting up a special Chinese initiative staffed by employees whose powers usurped the authority of sourcing and product managers. Processes and sourcing roles changed only after the company became comfortable working with Chinese suppliers. This manufacturer believes that the experiment helped its managers design a better sourcing program by allowing them to learn gradually about new approaches to purchasing, logistics, selecting vendors, and negotiations.At first sight it seems easy: Divide your total spend into different categories (eg, indirect such as office supplies and IT, and direct strategic goods), identify the number of vendors per category, focus on the biggest fragmented spend area and negotiate better contracts with your key vendors.
How to be confidence into the Chinese market?
Multinationals set up operations there, and domestic companies expanded to make goods for export and to sell products and services to multinationals doing business in the country.
Sourcing products from China will present problems that retailers will need to deal with, but for retailers in a position to expand their products line that much, sourcing from China can be worth the extra hassle and money it costs. It’s important to have a thorough understanding of how you’ll manage your overseas inventory, pricing, and whether or not you’ll be saving money by moving some, or all, of your product operations over to China. Once those questions are answered, you can proceed with confidence into the Chinese market.
What is the best way?
They should follow a clear 6 step approach.
I) Diagnose the opportunity, by creating a rough overview of the global spend and optimization potential per category (based on, e.g., number of vendors and vendor market position).
II) Select the focus categories and establish global transparency.
III) Identify improvement levers per category, including both externally oriented opportunities (e.g., consolidate spend with fewer vendors) as well as internal levers (e.g., better use of procured goods and better coordination).
IV) Identify the organizational prerequisites to capture the identified potential.
V) Perform first phase of reorganization and execute category optimization phase.
VI) Establish process, tool and procedures to enforce new procurement policies.