Challenges and Slow Down: Although there seems to be logic in moving as much spend as possible to LCCS to stay competitive, there are a variety of complex issues that need to be addressed in order to be successful in this area. The consensus of leading CPOs seems to be that LCCS is moving slower in most Fortune 1000 organizations than leaders anticipated.
China, India and Beyond: The majority of CPOs discussed the importance of establishing suppliers first in China and India given the size and importance of those markets. However, key CPOs noted the importance of establishing a broader global presence in other emerging economies such as Mexico along with focusing on building supplier relationships in markets where there is a current or future sales market.
Corporate Social Responsibility (CSR): Corporate social responsibility policies in procurement is an important strategic objective for most Fortune 1000 and Global 2000 companies; however, CSR has become both a goal and a limiting factor in sourcing decision making for the procurement organization.
Just Labor?: Several CPOs recommended placing strong emphasis on focusing LCCS efforts on direct materials purchases and on components with high-labor content. However, a few CPOs also discussed the value of sourcing "functional brain power" from emerging markets.
Low Cost Does Not Equate to Low Value: The "low cost" association with emerging market sourcing efforts sometimes gives the impression that these are "low-value" supplier relationships. This isn't the case with most companies and most LCCS relationships, CPOs find these suppliers truly want to collaborate and develop, "not just provide cheap goods."
Developing Supplier Relationships: Several CPOs commented how LCCS was challenging their views on supplier relationships, noting that companies need to be attractive customers to these suppliers as well, and that relationship building was perhaps more important in emerging markets than it is in the economies they have traditionally operated in.
"Scaling of low-cost country sourcing activities, and coping with the day-to-day management of the resulting global supply base, is the key current challenge we see across our customer base. Technology's role is to overcome some of the added complexity that is inherent in the definition and execution of an LCCS initiative. By improving coordination among different buyers and suppliers, industrializing the sourcing process, and acting as a central knowledge base to store and share all supply-related data, supply management platforms should add a dimension of stability and certainty to LCCS that is often lacking today," said Philippe Courregelongue, Emptoris' director of Consulting Services for Europe (EMEA), for Emptoris.
Where is the Next Wave of Savings?
LCCS and Beyond: The assembled CPOs agreed that LCCS is the current high priority in their cost savings strategy; followed closely by the implementation of enabling technologies. A tone of caution ran throughout the discussions urging procurement peers to balance the drive for savings with a vigilance for quality and sustainability of supply.
Security & Assurance of Supply: A key area of focus in bringing added value through the supply chain was in the area of security. In light of the tainted supplies of pet food and toothpaste that made headlines globally, CPOs were keen to discuss their increased focus on ensuring the security and quality of their supply chain. Pressure from the CEOs suite has shifted slightly from cost savings to security of supply and quality in the wake of recent events.
Leveraging Technology: The CPOs discussed the value and savings they had received with the implementation of sourcing technologies, and how to maximize the value of those technologies. For instance, one CPO discussed how his company had been very successful with auctions, but was focused on adopting a wider e-RFX process to support a more holistic approach to sourcing. The CPOs also discussed the impact of technology on his company's processes and vice-versa.
Traditional Skills coupled with Leading-edge Strategies: In terms of what areas companies will focus on beyond LCCS and technology to ensure continued value and savings, the CPOs discussed dozens of topics, including process outsourcing; increased supplier collaboration; value engineering; and the continued relevancy and importance of "old fashioned" skills of negotiation.