Global Sourcing Perspectives from a small Danish company October 18 th, 2010

The perspectives in this lecture are focused on practical background and experiences from Nor-Feed A/S – not on theoretical input

Nor-Feed’s definition of ”global sourcing” “Global sourcing is the procurement of products and of services from global markets”

Introduction to Nor-Feed A/S Since 1988, Nor-Feed has worked with natural feed additives that improve animals’ production parameters and general health The products are alternatives to conventional antibiotic and chemotherapeutic growth promoters Nor-Feed aims at developing products which are safe to use for animals, workers, consumers and the environment

Company mission To develop, manufacture, intellectually protect and market internationally natural additives for animals’ feed and drinking water

Location of office Nor-Feed A/S is located in metropolitan Copenhagen – part of the Danish/Swedish Medicon Valley area Nor-Feed A/S

Definition of natural feed additives – Yeasts – Alcohol extracts of parts of plants – Enzymes – Dried, milled parts of plants – Water extracts of parts of plants – Dried, milled parts found in the ground

Company structure (I) Internal organization –Six full-time employees –Four part-time student assistants Co-operation with Nor-Feed Sud in France Co-operation with key distributors

Company structure (II) Outsourcing of manufacturing to external partners –Toll manufacturing at facilities in Denmark and in France –License production at certain other facilities Outsourcing of quality control –of raw materials –of finished products

Distributors and strategic partners A network of international distributors –Primarily in Western Europe and South East Asia Strategic partners from various industries –Feed additive companies –Feed manufacturers –Food ingredient companies –Life science companies –Pharmaceutical companies

Practical reasons for sourcing globally (I) Costs vs. efficiency –The classic reason: ”you get more for your money” Reduction of risk by spreading activities –E.g. avoid shortage of supply –Always have at least two sources in different locations, by different owners

Practical reasons for sourcing globally (II) Accessibility of resources –Raw materials may not be physically available in Denmark, or not at a competitive price and quality –Know-how may not be available in Denmark or not available at a competitive price and quality

Areas of global sourcing (I) – Some general considerations – Inspiration for development of new products –From customers, suppliers, academic institutions and other partners and contacts R&D –E.g. knowledge on ”traditional medicine”, which is widespread in other parts of the world

Raw materials –Many raw materials used are simply not available in Denmark, or even in Europe Academic partners –With specialized knowledge Areas of global sourcing (II) – Some general considerations –

Verification trials –In vitro (trials conducted in a controlled environment) and in vivo (trials conducted on live animals) –A need for verifying effects of products under local conditions Manufacturing –Better and/or cheaper production outside home country Areas of global sourcing (III) – Some general considerations –

Analyses at external laboratories –Laboratories in different countries have specialized knowledge Logistics Areas of global sourcing (IV) – Some general considerations –

Why does Nor-Feed source globally? (I) Classic reason Lower costs outside Denmark/Europe –Raw materials –Services –Manufacturing –Etc.

Physical necessity Availability of raw materials –Most of Nor-Feed’s raw materials are not available in Denmark –Mainly raw materials from the subtropics –Security of supplies Why does Nor-Feed source globally? (II)

To circumvent trade barriers –Raw materials from one country may not be permitted into another  alternative local or regional raw materials must be used Why does Nor-Feed source globally? (III)

Legal aspects –Raw materials permitted in e.g. the EU, may not be permitted in countries outside the EU  acquire assistance from local advisers in specific countries Why does Nor-Feed source globally? (IV)

Competences are, in certain fields, better and more professional elsewhere –Local knowledge may differ from “Danish” knowledge –Sourcing of staff with backgrounds from other countries gives additional quality to local organization Why does Nor-Feed source globally? (V)

Manufacturing conditions are different –From one geographic area to another –From country to country –Different legal situations Why does Nor-Feed source globally? (VI)

Challenges (I) Keep our secrets, or we will be copied… We sell products – we do not sell knowledge about how to copy our products, and especially we do not give knowledge about how to copy our product, away for free

Challenges (II) Cooperating with partners –Information and knowledge sharing Risk of imitation –Protect your inventions with IPRs Patents Utility models Trademarks

Challenges (III) Poor infrastructure –Factories, raw material suppliers –Communication systems –Institutional constraints Ensuring proper quality –Documentation –Quality control

Challenges (IV) Cultural distance Differences in business practices Language barriers Different time zones Travel time and travel costs Costs of telecommunication

Summary Always assess whether it makes sense to source globally or if a particular product or service is just as easily available locally? Be very aware of the challenges connected with global sourcing