High Performance through Global Sourcing: Leveraging International Procurement Organizations in Modern China

Accenture and the China Supply Chain Council recently completed their second annual survey of international procurement organizations (IPOs) in China. From these findings, Accenture has drawn conclusions as to how companies can best capture and sustain the cost advantages associated with China-focused sourcing. In addition to providing insights on the role of IPOs, the authors also outline key IPO strategies that can help companies achieve high performance.

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International procurement organizations are the most comprehensive and far-reaching way to incorporate new sources of supply into a company’s established global supply chain.

These organizations offer more benefits and generally avoid most of the limitations associated with trading agents, joint ventures and wholly owned foreign enterprises. In effect, international procurement organizations are extensions of companies' global procurement organizations, functioning as shared-service entities that are staffed with specialized sourcing teams that perform dedicated order- and logistics-management functions. Their use often represents the best chance companies have of reducing sourcing costs and limiting sourcing cycle times.

Completed in late 2006, the second annual survey of international procurement organizations captured the insights and plans of 89 executives from a variety of industries.

The research built on results gathered from a similar survey conducted in 2005. By the time of the 2006, survey the efforts of most China-focused procurement organizations had grown to include more executional capabilities, including bidding and logistics management.

Other findings of the survey were as follows:

• The number of respondents who felt that their procurement organizations have met or exceeded expectations rose from 72 percent to 85 percent.
  
  
• More than half of these organizations produced cost savings of 20 percent or more.
  
  
• The number of international procurement organizations that exceeded expectations nevertheless dropped from 36 percent to 20 percent, possibly because their timetables and benefit goals were too aggressive.

Accenture's position is that the most successful international procurement organizations, which we categorize as masters, generate cost savings of more than 30 percent. This pinnacle had been reached by 27 percent of the survey respondents—organizations that appear to be well-positioned to become high-performance businesses.

Overall, respondents in the survey were optimistic that usage of their China international procurement organizations would increase significantly and consistently. This optimism is noteworthy because there are many challenges that companies must surmount if they are to grow—and save—as expected.

Crucially, since today's low-cost sources of materials and components could soon become mid-cost sources, procurement masters will be those organizations proving to be exceptionally agile and flexible as they respond to such changes.

Accenture's view is that five essential behaviors are behind the success stories of international procurement organizations. This means that procurement masters always:

• Focus on people: Attracting and retaining the best people is the first priority for organizations intent on reaching their goals.
  
  
• Involve third parties: Companies will have to meet their growing people needs by broadening the involvement of third parties.
  
  
• Measure performance: The business behaviors that contribute most directly to international procurement organization success need to be identified and measured.
  
  
• Insist on good governance: This is a crucial behavior in a well-functioning procurement organization.
  
  
• Develop the right operating model: A comprehensive operating model that aligns the procurement organization's strategies with its organizational structures and core supply chain capabilities is essential.

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