LIVE Day 2: Hackett Group LCCS Study

I had the chance this afternoon to stop by Hackett Group's LCCS benchmarking study presentation. While it is too early to draw any final conclusions yet -- Hackett is still in the process of completing the benchmarks, and today's results were an in progress snapshot -- much of the information is certainly directionally accurate.

In no particular order, here are some findings and statistics that are worth noting:

1) On the direct materials side, companies are expecting a 25% annual growth in LCCS spend (representing $54 million in incremental spending per year based on the survey sample).

2) Regions: China and India continue to be the major sources today of direct materials and will remain in the future; Eastern Europe is increasing slowly, while Ireland and Brazil are on the wane as LCCS sources. On the indirect side, India remains dominant as a leading source of supply, while SE Asia also remains high. Canada and Ireland will decrease in the future.

3) Spend categories: The largest LCCS categories are those which typically involve a high labor component including highly engineered parts, electronic components, etc.

4) International Procurement Office (IPO) locations: The largest locations of company IPOs in descending orders are: China (30%), SE Asia (15%), India (19%), Eastern Europe (11%).

5) IPO activities: Finding and qualifying suppliers tops the list (23% of respondents), while performing supplier quality work including audits is second at 16%. Negotiating with suppliers (13%), managing and supporting implementations (14%) and supporting transactions and logistics (13%) are all further down the list.

6) Net Cost Savings are often less than first envisioned. Ariba’s research suggests that material cost savings from LCCS might represent 40%, but these are reduced to 10-15% percent when you factor in total landed cost, supply chain costs, and supply chain risk (Hackett's research suggests that the actual savings number is a bit higher, however). We'll be exploring this in more detail here at Spend Matters in the coming weeks.

7) Success factors: The largest success factors in LCCS are use of IPOs, cross functional teams, SCM third parties (market makers, brokers, agents, SPL, auditors, etc.); less important are using LCCS consultants, supplier JVs, and the use of the Internet.

-Jason Busch

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