Eastern European Direct Materials Sourcing

I came across this article in Purchasing Magazine this morning on Eastern European sourcing. The article begins by noting that while, "[It] may take awhile, Eastern Europe will eventually become a viable source for electronic components and other production materials. Many OEMs and electronics manufacturing services providers already have manufacturing in Eastern and Central Europe. Companies have to import many components, but a supply base is developing around low-tech items." The article is a fast read, but should not be construed as the "state of affairs" outside of the main category it describes (electronic components). In some cases, the supply market for certain categories such as metals is much more advanced.

My wife has been sourcing from the region for over a decade, and I asked her a bit about the Eastern European sourcing dynamics this morning. According to her, the major impediment in the area revolves around logistics, and the inability of suppliers to meet the needs of Western companies with JIT programs. Getting products out of Eastern Europe can be as challenging -- or more so -- than getting them out of China and India. But the quality of supply, especially in the metals area including semis, forgings, and other related items can be very high. In addition, suppliers have been slow to adopt ISO, and various standards required by Western aerospace companies. And lean and other programs / technology adoption is virtually non-existent. Corruption is on the wane, but is still a factor as well. In short, sourcing from Eastern Europe is not for the faint of heart, but the savings opportunities and the quality of skilled labor in direct materials categories can make it worth the effort. But fast movers such as Alcoa are racing to invest in and acquire the best suppliers, so if you're planning to make Eastern Europe a direct materials supply hub in the future, you better get into the game before its too late. Companies like Alcoa understand the massive opportunity, and you should too.

Jason Busch

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