Is Your Sourcing Team Ready for Growth?
Sourcing executives across the nation are scrambling to learn the ropes in this strange and unpredictable world, where China — once home to cheap labor and rock-bottom costs — has lost its luster. How you navigate through today’s uncertain sourcing landscape is key to the survival of every sourcing organization — and those that can be nimble, adaptable and versatile will thrive.
Now, in particular, is a pivotal time to take stock of your organization’s strengths, weaknesses and needs. With economic recovery taking root, there’s a boost in demand. Opportunity abounds. Is your team ready to jump in and play by the new rules? Or are they stuck in their old ways?
First order of business: Take a good, hard look at your sourcing organization and see where you stand vis-À-vis three essential — though by no means exhaustive — capabilities: regional analysis, shortlisting, and on-the-ground research (more on these shortly).
Then appraise your staff. Can your current team support you in these key areas? Will they assist you on the path to growth? If there are gaps, decide how you will fill them — by training employees, hiring new people, or engaging a third party to do the job.
Three Capabilities You’ll Need in the New World
Here, in greater depth, are three capabilities every sourcing organization needs in today’s capricious supply-chain world.
Capability #1: Regional Analysis in the Post-China Era
American sourcing organizations rode high on the low-cost China wave for more than a decade, many putting all their eggs in that one basket. But now — with China’s skyrocketing wage rates, escalating costs, and fluctuating currency — monogamy is a risky choice.
Forward-thinking companies must prepare to be flexible, sourcing across a variety of geographies to find the best products at the best prices. Before sprouting wings and rushing into new regions, though, you must do your research. A thorough geographic analysis, coupled with knowing your needs, will help you land on your feet.
Start by ascertaining if your organization is more sensitive to a region’s costs or its risks. There are tradeoffs in both scenarios: Risk-sensitive sourcing organizations will want to steer clear of geopolitical hotspots, although they may literally pay a price in the form of higher costs. Those that are cost sensitive will seek out regions with lower wage rates but may land in more politically charged areas.
Once you’ve developed a clearer sense of your organization’s sensitivities, focus on those regions that fit your needs, examining critical information about each country, including its:
- Labor force – are these workers experienced in producing your desired product?
- Costs – consider wages, productivity rates, transportation costs, and duties
- Risks – weigh currency risks, political stability, and the possibility of trade conflicts
Capability #2: Shortlisting Your Prime Prospects
In addition to regional analysis, sourcing organizations need to have solid shortlisting capabilities to effectively and efficiently find suppliers in their regions of choice. Who in the country provides what you need?
Since you’re likely operating in new geographies, you may not have a reliable referral network in place to guide you through this process. However, there are a variety of tools that can help you target the right prospects — making this task relatively easy and painless.
Use the Four C’s to scrutinize a company’s qualifications:
- Customers – who are the company’s past and present customers?
- Capability – what is its track record in producing what you need?
- Certifications – which ones does the company hold?
- Credit – is the vendor financially sound?
Capability #3: On-the-Ground Research
This is a no-brainer for most sourcing organizations that have been doing in-country research for years — meeting potential suppliers, visiting plants and mills, conducting factory inspections, and networking with the locals. Deep, on-site diligence continues to be an absolute must.
But if you’re setting your sights on new geographies — say you’ve been entrenched in China, and you’re now heading to Cambodia — things get a little trickier. You’ll need to decide if you should relocate your current research team or partner with another organization to perform the necessary due diligence.
In House … or Outsource?
The Big Three — regional analysis, shortlisting, and on-the-ground research — are must-have capabilities for today’s sourcing organizations. The question is: Do you handle these responsibilities in house or entrust them to a third party? That depends on how you view the “new normal.”
What’s the New Normal?
The China ride was euphoric while it lasted, spoiling us with a seemingly inexhaustible supply of cheap labor and rock-bottom costs. Have we lost that sense of comfort and stability forever? Are we destined to evaluate and move into new regions on a continual basis?
What the “new normal” shakes out to be is anyone’s guess. But there are two prevailing schools of thought:
- View 1 – China was the last country to truly dominate, and we’re now living in a multi-polar world where constant change is the norm. Sourcing organizations will need to conduct routine geographic analyses as they hop from one region to the next to find the right goods at the most favorable prices.
- View 2 – The rise in Chinese labor costs is a seismic shift that has altered the manufacturing landscape forever; however, things will eventually stabilize, a new equilibrium will emerge, and sourcing organizations won’t have to research new regions until the next seismic shift shakes things up again.
Which Way Do You Go?
If you subscribe to the first view — and believe that constant change is the new normal — bring your regional analysis in house. In this world, research is not a one-time deal but an ongoing process, driven by geo-political events, wage increases, and currency fluctuations. It makes economic sense to invest in this capability, and you should do it now.
However, this scenario means that shortlisting and on-the-ground-diligence are nearly impossible (or impractical) to support in house. As long as things remain dicey and unpredictable, partner with a third party to take on these roles.
On the other hand, if you’re inclined toward the second view and believe we’ve just experienced an episodic reshuffling of the deck, there’s little reason to bring a regional analyst on board. Instead, outsource that task to a third party when needed, and — once things settle down and the “new China” emerges — invest in your in-house short-listing and due diligence capabilities.
In the absence of a crystal ball, it’s important to keep a close eye on events in the years ahead. Take a sober look at your organization’s strengths and weaknesses, and focus on your Achilles’ heels. Then decide whether it’s worth building those capabilities in house or if your time and money are better invested in hiring a trusted third party.
Sure, things were a lot easier in a China-dominant world. But honing your organization’s skills and addressing your shortfalls will make you stronger, smarter and more competitive than ever before.
Josh Green is CEO of Panjiva, an intelligence service for sourcing executives.