What is China sourcing?
Until recently, procurement was a necessary, but seldom celebrated, component of multinational corporations.China sourcing , to a certain extent, is very similar to a lot of the low-cost country sourcing or overseas sourcing .Multinational corporations have been sourcing from China for years, but that doesn’t mean that all the questions have been answered about how to engage in procurement activities in the world’s fastest-growing economy.First of all, when you say that a company is not doing well in China sourcing, there are usually two issues. Number one is they can’t find good suppliers that can supply them at a relatively low cost. Number two is they can’t move enough volume over to China. I think that these two things are usually interlinked, but they can also be separate.
The ability of China Supplier
Nowadays, with the supply base getting much more capable and the local demand getting higher, we see suppliers being developed to a certain level that some are actually supplying to Western companies for future models, which is a new thing in China.
A lot of suppliers are extremely capable, highly automated, and as a result, by bringing a lot of the decision-makers to China to see for themselves, it actually opened their eyes and changed the perception. You cannot underestimate the impact of changing the nonbelievers [and] the impact of that on the entire organization. And by changing their attitude, the entire organization will start moving toward the right direction.This means taking a more holistic view of how sourcing fits into a company’s overall activities in China , and it requires a deeper level of management engagement.
Three imperatives are essential to successful implementation:
1. Know your suppliers inside out.
This includes understanding the true cost positions of current and potential suppliers. Assess supplier performance against major cost drivers (including wages and benefits, productivity, facility and process/equipment scale and utilization, logistics, and access to raw materials). Low labor costs and the ability to obtain cheap raw materials and components are just two possible elements of cost structure. To gain a true advantage, it is important to establish the ideal combination of world-class performance with location, scale, process technologies and automation, and success in execution. It will then be possible to rate potential suppliers against that ideal and determine how close a supplier from a low-cost country can come to meeting it.
2. Develop strong relationships with a small number of suppliers.
Identify the suppliers that are willing to commit to a long-term relationship and to jointly creating a competitive advantage. Offer an enduring and profitable business relationship to each supplier and, in turn, demand its commitment to meeting cost, delivery, quality, and, if applicable, innovation targets. This will likely require local resources dedicated to supplier development, which means working with the supplier to achieve ambitious jointly established targets.
3. Work jointly with your suppliers on continuous improvement.
Focus on developing suppliers’ capabilities and advancing their competitiveness over time. Set ambitious but realistic targets for better performance in cost, quality, delivery, or innovation, and work with your suppliers, not against them, in achieving those goals. Successful continuous improvement requires agreed-on objectives, clear communication about current and anticipated costs and processes, and an open exchange of ideas about how to improve.
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