Strategic Sourcing: Hitting A Moving Target

Jan. 24, 2007
When sourcing from Asia and the Pacific, manufacturers need to constantly keep on top of who does what well.

Imagine going to your favorite restaurant and finding out that there's a new chef in town and the dish you made a special trip for now tastes like wallpaper paste.

"Global sourcing dynamics are also always changing and a good source today may not be so good six months from now," observes Christopher W. Runckel, founder of Runckel & Associates, a Portland, Ore.-based consulting company that helps businesses expand in Asia.

"For example, five years ago Thailand was not a very good source for car parts, car accessories or specialty automobile items," notes Runckel on his Web site. "Today, this has changed and many Thai companies produce quality automobile items at very competitive prices."

Another thing manufacturers looking to source from Asia and the Pacific need to keep in mind: Just because a company makes a good product doesn't mean it will be a good sourcing partner.

"To meet this standard, a company must have had experience exporting to big key markets like the U.S. and Europe," explains Runckel.

He also notes, "Thailand remains a solid place for sourcing because of the quality of the supply chain. Large numbers of companies here have been involved for up to 30 years or more in supplying Japanese suppliers. Because of this, high quality is embedded in many of the better companies."

However, "Vietnam has yet to reach this level of quality and is still hampered by poor infrastructure, but is moving fast up the value chain," says Runckel, who visits Asia once a month to help businesses expand. Currently, he is helping three companies considering placing factories in either Thailand or Vietnam. China was the original front-runner, but better tax incentives in Thailand and Vietnam bumped it out of the running.

Other tips that Runckel offers:

  • Always sign a non-disclosure agreement.
  • Put work goals, time tables, price, targets and a designated final product in writing.
  • Consider the effect of inspections, shipping charges and customs fees.
  • Know that the lowest price should not be the sole factor in deciding who to strategically source with.
Purchasing Calendar

Procurement Technologies: Achieving Procurement Excellence: Strategies & Tools
March 28-29

OSDBU Procurement Conference 2007
April 19
Upper Marlboro, Md.

National Association of Purchasing Card Professionals Annual Conference
April 30-May 3
Palm Springs, Calif.

Institute for Supply Management (ISM) Annual Conference
May 6-9
Las Vegas

Supply Chain/Purchasing Seminar
June 5-6
Nashville, Tenn.
Indeed, the actual purpose of strategic sourcing is to reduce costs of purchased materials, products and services while improving quality, services and technology. To do so, companies need to look at the total cost, not just the purchase price.

If you spend $10 on a part that normally costs $40, you have to expect there is a reason the part is so cheap. Chances are you will spend more money in the long run on repair costs and damage control.

According to a recent AMR Research Inc. report, sourcing from Asia still poses opportunities as well as challenges.

"Long lead times, high logistics costs and lack of visibility/information are the traditional issues. These are now further complicated by more stringent compliance mandates, regulations for import/export and supply chain security," notes Jane Barrett, research director for industrial manufacturing at AMR.

Barrett adds that globalization, multitier distribution networks, contract manufacturing and increasingly dynamic product lifecycles are requiring companies to improve inventory management, not only to reduce costs, but also to increase product availability and customer service levels.

Ultimately, what it comes down to is due diligence.

"Companies willing to work with suppliers and to invest the time in ensuring a meeting of minds and an understanding of key concerns will find many [Asian] plants solid and quite willing to learn and improve both their quality and their quality management systems to meet foreign company needs," says Runckel.

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