SOURCING & PROCUREMENT
Top Considerations for
Engaging in Profitable
We have been writing for a
few years now about the
changing perceptions of global
sourcing, and as distribution
and lead-time costs become
more prominent, the need to
think more holistically about
how and where to source
materials and finished goods.
It is no longer sufficient to
think just about labor costs,
but total costs with an appreciation for the impact of long
—Simon Ellis, Supply Chain Strategies
practice director, IDC Manufacturing
DC Manufacturing Insights conducted a survey in October 2010, asking
204 U.S.-based manufacturers about their plans and priorities for global
sourcing in 2011, and beyond. The survey was balanced across company size and role in the supply chain, and all respondents were either
familiar with their company’s supply chain strategy and operations, or were
part of the IT group supporting the supply chain.
Overall and as expected, the trend for supplier location is increasingly global,
although the data suggests this has now flattened out—expectations for regional
sourcing are down somewhat over the time frame of the questions (2008-2012).
However, “single-country” sourcing is down significantly. This suggests that for
most companies, even if the costs do not favor global suppliers, no such constraints
exist for taking a regional view of supply. We see a similar trend for “owned and
operated” locations to be global, although in this case the data shows that there is
still some significant movement to be made globally over the next two years.
When manufacturers look at global sourcing, it is comforting to see that they
are increasingly looking at a more complete view of costs—although, perhaps
not yet a fully realized “total landed cost.”
The top three priorities when making a sourcing decision are: manufactur-
ing cost (owned and/or outsourced production); logistics and/or fulfillment
cost (transportation and warehousing); and supply lead time (time to receive an
order from supplier once order is placed).
Product quality and risk management have climbed in importance. The following points are worth noting: the importance of supplier financial health has
climbed in importance based on the past few years where manufacturers faced a
significant number of key supply insolvencies; risk management, or continuity
planning, has also climbed significantly in terms of priority for manufacturers
when evaluating supply decisions; and visibility is increasingly important, particularly as an early warning signal for problems in the supply side of the supply chain.
All three of these points come back to risk management and continuity planning and the challenge companies have in attempting to quantify, for example,
better supply side visibility.
IDC Manufacturing Insights expects rising labor costs in emerging economies, a
growing appreciation for the benefits of shortening lead times, and the importance
of product quality to drive some quite different sourcing choices in 2011.