1. Global Sourcing Strategies to Achieve Long-Term Success
Brandon Spear
Senior Vice President - Operations

2. Global Sourcing A Fundamental Strategic Objective
What is Global Sourcing?
The business process of identifying, evaluating, negotiating and configuring supply chains across multiple suppliers and geographies
Common Reasons for a Global Sourcing Strategy
Reducing overall cost structure
Availability of new technology and capacity. Often domestic suppliers lack capacity and / or are not making the necessary investments to stay competitive.
Establishing alternative sources of supply – reduced risk.
Access to new designs or specialized intellectual capital.
Superior quality. This is typically due to supplier investment in technology and capacity to attract global business.

3. Global Sourcing Strategies
Develop and implement a plan
Take a multi-country approach
Move more spend to “Low Cost Countries”
Develop a plan beyond cost savings
Create effective Local Procurement Offices
Develop a strategy to mitigate risk

4. Global Sourcing Plan A typical approach
1. Recognize the need for global sourcing and LCC opportunities
2. Establish Global Sourcing Steering Committee (include business unit executives)
3. Understand requirements and strategies of the business units
4. Identify opportunities to leverage and standardize on a global sourcing process
5. Prioritize opportunities (typically by commodity and/or process)
6. Develop LPO and integrate with cross locational / functional commodity teams
7. Achieve consensus and communicate global sourcing strategies
8. Establish aligned approaches and processes
Procurement systems
Metrics
Teams
9. Execute sourcing strategies as appropriate
10. Measure Performance

5. Emerging Markets Multi Country Approach
China is the primary Low Cost Country (LCC)
But near shore countries need to part of strategy
Brazil, Mexico and Argentina are viable markets and closer to US based companies
Eastern Europe is growing and EU allows for free trade across borders
A Multi-Country Approach is Leading practice

6. Emerging Markets Multi Country Approach
Weighted preference of top low-cost countries
Brazil, 8%
Argentina, 9%
Hungary, 10%
Mexico, 10%
Poland, 12%
India, 14%
Czech Rep, 14%
China, 23%
China, 19%
USA EU
Accenture Survey 2004

7. Cost reduction benefit is significant
Financial Benefits
Increasing Procurement Spend in LCC
Leading Companies expect to double the spend volume in LCC over the next 3 years, from 14% to 28%
Increase in overall savings expected to be ~10%
Benefits
Cost reductions averaging 19% from 14% to 28%
Total Cost of Ownership reductions averaging 12%
Downside
Inventory Investment increase of 3%
Increased Transportation / Logistics cost 2%
Cost reduction benefit is significant

8. Establish a local Procurement Office is Leading Practice
Moving Beyond Cost
After cost saving companies need to:
Ensure new suppliers will last over time
Help new suppliers to grow with you
Add new suppliers for additional products
How?
Evaluate total value and total cost of global sourcing decisions
Find personnel with worldwide knowledge and skills
Increase visibility of available sourcing data
Enhance knowledge of available global suppliers
Make global sourcing part of overall company operations
Establish a local Procurement Office is Leading Practice

9. Local Procurement Office Capabilities to achieve success
To conduct effective Global Sourcing, companies should establish a Local Procurement Office (LPO)
Step 1: LPO must have these fundamental capabilities:
Supplier Market Research
Supplier Identification & Qualification
Savings Opportunity Identification
Quality Inspections
Logistics Planning and Execution
Supplier Database Development
Integration into the procurement organization

10. Local Procurement Office – Cont’d Capabilities to achieve success
Step 2: To materialize the saving opportunities the LPO should have transactional capabilities:
Execute bidding processes
Establish and provide Logistics Management
Procurement transactions
Contract and project management
Invoicing and Payments

11. Local Procurement Office – Cont’d Capabilities to achieve success
Step 3: To maximize and maintain saving, the LPO should have advanced capabilities:
Category management
Develop supplier market strategies
Inventory management
Procurement and Sourcing training

12. Risk Mitigation Global Sourcing is not without risks
Lengthened supply lead times
Increased transportation and logistics costs
Supplier delivery concerns
Supplier quality
Intellectual property
Lack of supplier responsiveness
Language issues

13. Risk Mitigation (cont.)
Risks are manageable with time and resources
LPO’s must work closely with global suppliers
Establish risk mitigation strategies
Dual source with low-cost suppliers (80% to one supplier, 20% to another)
Use low-cost supplier and on-shore supplier
Ramp-up supply with new low-cost supplier
Pick the right products for low-cost suppliers
Should have high labor cost component to outweigh risks

14. Summary Worldwide competition is increasing Global Sourcing
Companies are looking at 31 – 40% of annual expenditure
China is the primary country but near shore is viable
Brazil, Mexico, Argentina, Eastern Europe
A corporate strategy for Global Sourcing is critical
The LPO is critical to creating and maintaining benefits
Must be integrated into core procurement organization

15. Questions

16. Brandon Spear Senior Vice President - Operations bspear@quadrem.com
THANK-YOU
Brandon Spear
Senior Vice President - Operations

17. Quadrem can support your program
Global Resources
Supplier search in targeted regions
Global/local sourcing teams to help with managing sourcing processes
RFQ, RFI, negotiations, spend analysis
Resources to support your LPO
Sourcing and Procurement Tools
Electronic RFQ, RFI and negotiation tools available in multiple languages
Spot buy application to conduct price and availability checks
Global procure-to-pay transaction platform to connect suppliers to your ERP system