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©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
There is no doubt that the outsourcing market will grow in 2004 and continue to do so
well into the future. Many multi-national companies such as General Electric, Wal-
Mart, Procter & Gamble, Siemens, and Nokia have moved part of their operations to
low-cost countries such as China and India. How have these companies successfully
adopted this new movement? While the process is complex, there are steps and
resources available to make it run smoothly and quickly, resulting in the identification of
immediate cost savings.
While there is no ‘master’ approach, the bottom line is that businesses across the globe
are becoming increasingly interconnected, and are experiencing excellent results with
global sourcing. Most companies that have been successful utilize outside resources
that have the experience and knowledge base to guide them through potential issues
and deliver immediate results.
Today, cost reduction is one of the leading factors in driving firms to turn toward global
sourcing. Additional goals include quality improvements, time-to-market reductions,
availability improvements, and synergy creation of company resources and the global
partner. But essentially, the goal of global sourcing is to meet or exceed product
expectations while driving down production costs and streamlining the supply chain.
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 2
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
• Strategic Sourcing - Companies may seek “strategic sourcing,” which in its purest
form, involves optimizing supplies that are the basis of the business success. Such
supplies are prized by the buyer because they improve performance and provide
value. Low-cost sourcing is attractive when these supplies are labor-intensive and
multiple suppliers exist.
In effect, global sourcing allows a company to capitalize on low production costs without
having to actually own the supply network in such countries. In this way, companies can
avoid the investment risks in such countries, but at the same time, enjoy the production
benefits.
The concept of sourcing does not matter unless you execute. Focusing on simply
finding the lowest-cost supplier for a particular product is dangerous, as there are
multiple factors involved solely in the discovery process, and each factor needs to be
investigated carefully.
The point is to consider the total cost of ownership, not just the purchased cost. In terms
of global sourcing, price reductions are only the tip of the iceberg. Underneath the
surface are a myriad of factors that need balancing, such as taxes, shipping, compliance
requirements, and inventory. Avoid letting the desire to find the lowest-cost sources drive
the search. The key is to target products that provide high benefit and low risk.
Based on 50 years of collective projects helping companies achieve the best returns and
satisfaction from their global sourcing efforts; following are six steps to a successful
implementation:
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 3
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
6. Calculation
A company cannot maximize the value of its global sourcing initiatives
without reliable procedures for calculating and managing landed costs.
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 4
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
Why China?
Over the past few years, China has firmly established itself as the spot for global
sourcing. During 2003 alone, Ford announced plans to buy $1 billion in auto
components from suppliers in China; Wal-Mart established a sourcing division in
Shenzhen to buy direct from Chinese factories; and Philips Electronics’ 23 factories in
China surpassed $5 billion in goods produced.
For the last two decades, China has been steadily transitioning from its former centrally
planned model to a market-oriented economy. This increasing openness, especially to
foreign direct investment, has contributed to its exceptional growth. China’s success in
attracting foreign businesses can be tracked to its market size, labor costs, quality of
infrastructure, and government policies. Any comparison of figures for labor costs—and
there are many—reveals that China’s labor costs are extremely low compared to other
countries.
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 5
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
This indicates wariness towards investing capital in China without adequate control over
fund use, and wariness toward ventures with state-owned enterprises. In this context,
sourcing offers the best opportunity to ensure reliable supply without investing capital.
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 6
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
Founded: 1995
Services:
Global Sourcing Strategy and Execution
Indirect Procurement Strategy
Global Supply Chain Restructuring
Business Process Outsourcing Strategy and Execution
Inventory Planning & Control
Operations Integration & Reorganization
Systems Evaluation and Selection
Process Improvement
Finance & Internal Controls, including Sarbanes-Oxley
Expertise/People:
Reese Partners’ consultants blend extensive, hands-on experience with high-level
strategic thinking. Our professionals average more than 20 years of industry
experience, and have worked and lived in over 60 countries around the globe.
Cutting Costs
Reese Partners helps companies reduce costs and increase revenue through practical
global sourcing strategies. Successes include:
• $60 million in estimated cost savings over three years after implementing a
strategic sourcing initiative for a $1 billion consumer products company.
• Increase sourcing volume from less than $100 million to $450 million at first cost
for a multi-billion dollar full-line department store.
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 7
Chicago • Shanghai • Mumbai
Global Sourcing – An Anchor Format for Successful Globalization Strategies
Case Study
Reese Partners was retained by a $200 million consumer products company to
review their global operations and customer interface. We evaluated existing processes
in the US, Hong Kong, Europe, and Canada across Sales Productivity, Product
Management and Development, Global Logistics, Inventory Management, and other
G&A. Within 8 weeks, we identified opportunities to save more than $5 million per
year. The initial objective outlined by the investors was to realize more than $2 million in
sustainable performance improvement opportunities. After Phase I, EBITDA improved
in excess of $7 million, and cash flows improved by $14 million.
Neil Gambow
President, Midland Manufacturing
“Reese Partners helped Huhtamaki realize significant cost savings of over $2 million a
year. The expertise provided by Reese Partners was superior to what we could have
done internally, with respect to both quality and time. They brought an objective view
that couldn’t be replicated internally, worked within a tight timeline and presented what
made the most sense given both current and future business trends.”
Thomas P. Wilkas
Former Executive Vice President and Chief Financial Officer, Huhtamaki Americas, Inc.
©2005 Reese Partners 303 West Erie Street Suite 310 Chicago IL 60610 312.397.3100 8
Chicago • Shanghai • Mumbai