Tuesday, 31 July 2007

European Strategies for LCCS

Low-cost country sourcing is probably one of the most powerful means for realising cost-savings opportunities. In March 2005, Ariba Inc. and Supply Management Institute (SMI) conducted a collaborative research project on the topic of low-cost country sourcing (LCCS) to investigate how procurement officers are using this to improve competitive advantage. The research questioned 200 Chief Procurement Officers at large companies from France, Germany, Italy, Spain and the UK with the aim of investigating how they carry out low-cost country sourcing activities to improve competitive advantage. More specifically, the study addressed the following questions:
  •  Which locations are most important for sourcing today and five years time?
  •  Which supplies are suitable for sourcing in low-cost countries?
  •  What risks are associated with low-cost country sourcing?
  •  What measures have companies taken to facilitate low-cost country sourcing?
  •  What is the impact on corporate performance from low-cost country sourcing?

The findings show that low-cost country sourcing can have a positive impact on company performance in terms of cost and quality although the time dimension remains to be a challenge.

Moreover, the findings suggest that low-cost country sourcing activities must be carefully planned, executed and evaluated in order to cope with risks and other types of costs that may offset benefits if not done properly. Some of the key findings are:
  • Companies are still sourcing extensively in the home country, followed by neighbouring countries. Thus, nearshoring is highly prevalent today and the situation will persist to a large extent until at least 2010. 48 percent of the respondents rank their home country among the three most important sourcing countries.
  •  Over the next five years, the value of goods and services sourced in low-cost countries will increase by 64 and 60 percent, respectively. In other words, low-cost country sourcing will increase dramatically by 2010.
  •  China is the most important country for low-cost country sourcing today, and its position will strengthen even further by 2010. The number of respondents rating China among the top three most important sourcing countries is expected to increase from 30 to 45 percent.
  • 48 percent of the respondents align LCCS strategy to the corporate strategy to a high or very high extent. 61 percent of the respondents claim to involve senior management in formulation of visions for LCCS to a high or very high extent.
  •  Quality and total landed cost savings are the two most widely implemented performance metrics. These are implemented to a high or very high extent among 56 and 45 percent of the respondents, respectively.
  •  70 percent of the respondents have experienced positive impact on total costs, 61 percent have experienced positive impact on transportation costs and 50 percent have experienced positive impact on labour costs.