Beyond Low Cost Country Sourcing: Thinking Globally, Acting Locally (Part 2)

The Spend Matters Perspective Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade (registration required, free download for qualified practitioners) explores 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 first post in this series, we began to explore how global procurement organizations should begin to think about developing core capabilities to enable centralized oversight and control while decentralized flexibility and autonomy -- a challenging balancing act. This approach transcends policies and should become a fixture of systems with localized workflows and permissions in the source-to-pay arena. Spend Matters expects that enabling tools will increasingly permeate the practices of leading companies in the areas of eProcurement, direct materials MRP procurement, electronic invoicing, invoice discounting and contract management, enabling a centralized view of contracting, buying and supplier management activity while allowing for decentralized (but controlled) activity and action.

Technology will play a key part in enabling a range of more frequent scenarios in the global procurement world. For example, as more and more manufacturers bet on markets like China and India for growth, the ability to meet local requirements such as allocating a certain percentage of spend to local suppliers even where established supply bases are not capable of meeting certain requirements without additional, potentially buying-organization funded capital investments, will become more important. Offset requirements in A&D, for example, have proved costly for companies doing business with emerging markets that need to teach, qualify and implement suppliers that have never provided parts and components to a specific level, quality or type before (e.g., titanium or composite fasteners vs. aluminum or steel fasteners).

We also expect to see taxation and tax avoidance strategies become a norm in cross-border transactions. From tax-optimized supply chains that leverage procurement companies in havens like Luxemburg to more routine transfer agreements between entities to the use of familial trading companies to facilitate specific outcomes (e.g., off-balance sheet activity), the ability to act locally and take advantage of regional laws will help global manufacturers in new ways -- at least those that are ready.

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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