Second, cost is still the key driver of global sourcing activities. It is no longer the only compelling reason to source globally, but it has rapidly become a threshold requirement to compete globally. The practice has become so widely embraced that the cost savings generated no longer necessarily provide a competitive advantage. As respondents watch competitors reduce costs through global sourcing they have no choice but to follow suit. This point was emphasised by a number of our respondents, who felt that any cost advantage associated with global sourcing was already beginning to disappear. Bernard Chandonnay, CEO of Far Group Europe echoed this sentiment. “Because all our competitors source abroad there is little differentiating value in terms of price,” he said.
Third, many of the surveyed companies do not have an effective procedure to measure and track their actual savings, even though cost is their key objective. In effect, they don’t know their ‘true cost.’
Finally, as respondents look to the future, product quality is tapped as their highest priority – but a surprising percentage is not confident that they are effectively managing the risk of product safety. With so many of our respondents expressing some lack of confidence in this area, it seems certain that more attention needs to be given to setting quality standards and understanding where in the process things are likely to go wrong. Our respondents were even less confident about managing other risks, such as carbon footprint.
To minimise the erosion of cost benefits and drive sustainable competitive advantage companies need to address these issues:
• Creating an effective performance programme. A significant number of companies in our survey neither knew what cost savings to expect from their global sourcing programmes – nor what their actual savings were. Many companies did not have a proper mechanism to measure and track the savings from their global sourcing activities.
• Linking key goals and objectives for global sourcing to human capital and reward systems. Of our respondents who rewarded based on global sourcing goals, a majority rewarded based on cost reduction and quality – which links well with their stated objectives.
• Developing systems for measuring the ‘harder to measure’ costs of global sourcing – such as out-of-stocks and quality costs. Our survey clearly pointed out the contradiction between what our respondents said was important (cost) and the extent to which they track and measure the elements of that cost.
• Addressing the environmental aspects of global sourcing programmes. Many of our survey respondents did not feel confident about their ability to manage the risks of climate change and carbon footprint.
This report offers practical recommendations for handling the risks of carbon footprint and climate change, measuring supplier performance, managing risk and improving tax efficiency. All of these areas will continue to be critical ones – and the issues impacting companies sourcing globally will continue to increase the complexity of executive decisions. As new countries present themselves as viable sourcing options, so new trade incentives and restrictions, tax and environmental regulations and consumer trends will need to be carefully considered to create an effective and cost-efficient strategy.
The insights and strategies in this report will provide food for thought to help navigate the increasingly complex set of issues that are shaping the global sourcing agenda.