Beyond Low Cost Country Sourcing: Thinking Globally, Acting Locally (Part 1)

In the Spend Matters perspective Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade (Spend Matters PRO registration required, free download for qualified practitioners), we explore five strategies for manufacturers to pursue in developing a direct materials sourcing playbook for the next decade. These are:

  1. Enhancing Forecasting and Planning Capabilities
  2. Leveraging Smarter Negotiation Tactics
  3. Enabling Total Cost Visibility DNA
  4. Extending Supplier Management and Broader Supply Chain Orchestration
  5. Focusing on Developing Core Capabilities to Think Globally While Acting Locally

In the paper, we argue that one of the most imperative strategies for global direct materials procurement and supply chain execution in the next decade will be the ability to think globally while acting locally. Leading manufacturing organizations have long realized that truly centralized procurement will never be a possibility, especially for direct spend.

Yet centrally managed technologies, processes, controls, audit trails and standards that can then be customized and adopted to suit local market conditions in countries where an organization is operating will become more and more important to reduce and manage total costs and proactively mitigate supply chain risks. On the most basic level, this might involve providing a spend analysis and strategy development environment, allowing companies to look at and classify spend to local standards and taxonomies (e.g., a UNSPSC standard but with the ability to pivot to local ERP/MRP material codes) or to flip between steel cost breakdowns in metric tons or short tons (e.g., based on system, geography and material type).

More advanced use cases may involve different sourcing workflows for named categories in regions where the potential for fraud is more prevalent. For example, an organization might configure a centralized system in certain Asian countries where supplier collusion and kickbacks are common to only provide detailed supplier information (other than named supplier A, B and C) to high-level executives outside the specific country a bid is taking place. This could prevent information sharing between local rogue managers and the supply base, an unfortunate practice that is more common than many organizations would like to believe.

Spend Matters readers can access Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade in our Research Library today (registration required). Qualified practitioners can download this and over fifty other research papers free of charge.

- Jason Busch

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