Sourcing: Extending the Footprint Reconfiguration to Suppliers

Abstract

For most industrial products, the biggest cost factor by far is materials. This means companies can only tap the full potential of a global network if, in addition to having their own manufacturing sites, they also source worldwide as cost-efficiently as possible. It often takes these savings in materials costs to actually make foreign locations attractive in the long term. However, nurturing competent local suppliers is a demanding task that requires patience and intuition. Companies should factor in substantial time and resources for selecting and building suppliers in developing and newly industrialized countries. Planning this process is crucial to realizing these savings.

The development of a tailored sourcing strategy begins with segmentation of the materials groups required. The company has to decide (for each category individually) whether to source items locally for the new plant in the medium term or to continue buying from the current supplier. Quality risks and process complexity should be factored in as decision criteria alongside materials costs.

Ideally, local sourcing is built up in two phases parallel to relocating production. First, the company realizes quick wins, sourcing parts from local providers who can supply them reliably without intensive preparation and training. As soon as local production is running smoothly, the second phase begins. The aim is to tap the full potential of local sourcing and ensure that more complex parts can also be obtained locally. To achieve this, the manufacturer needs to systematically refine the capabilities of its own sourcing organization in the target country as well as supplier skills. A local supplier structure can only be built up efficiently with a highperformance local sourcing organization.