Supply Management International

SMI	supply management international

home | about us | contact | press room | FAQ

FAQ's

What cost savings percentages can I expect through Low Cost Country Sourcing ?

While it is difficult to predict cost savings potential as the particular commodities, country source, quality requirements, and current pricing status is not known, typical savings for manufactured product from China, India, and Southeast Asia, can range from 10 % to 50 % of standard North American cost. Cost savings can only be adequately compared on a landed cost basis, so comparisons must include transportation, customs duties, and currency hedging contracts required to deliver product to your factory door. Most projects result in an 18 % to 35 % total cost savings.

Why do companies require assistance in Global Sourcing Activities ?

The challenge for many mid-sized and some large corporations is in acquiring the experienced resources to strategize, manage, and implement successful sourcing of materials and components in low labor rate countries. Typically the experience and knowledge required to support a successful transition to a foreign source is not resident within the current organization, and recruiting a Supply Management professional with the required experience is extremely difficult and expensive.

Although brokers representing foreign manufacturers are available to source product overseas, intrusting a third party to qualify quality systems and procedures is risky, while the arms length business relationship with the supplier is contrary to sourcing best practices.

Although many large multi-national corporations have created their own International Procurement Offices (IPO) in low cost countries, the financial commitment to staff and maintain an IPO is in the millions of dollars per year. Most mid-sized companies do not have the volume to justify, or financial resources to commit to an expense of this magnitude.

How can risks of Low Cost Country Sourcing be minimized to an acceptable level ?

Without a doubt, many companies have attempted to source product from low cost countries with disastrous results. Without experienced staff to understand the risk factors and put processes and procedures to mitigate those risks, failures can easily occur. Many companies have experienced part shortages, delayed shipments, poor quality, intellectual property infringement, foreign currency losses, lost shipments, and warranty claims in initial attempts at Low Cost Country Sourcing. In reality, any of these with perhaps the exception of the foreign currency losses can occur with suppliers in our own backyard. However, time zone differences, cultural misinterpretations, faulty language translations, and logistical problems are all common challenges that must be managed for international sourcing to be successful.

What Services do SMI offer that addresses these problems ?

SMI brings the necessary experience and accessibility to critical data to develop candidate commodities for low cost country sourcing. In Phase I of a project, SMI will develop a detailed strategic plan for the select commodities in conjunction with the client’s staff. SMI will then research prospective suppliers, from its own China database as well as other country specific databases maintained by our staff. Once a short list is chosen, SMI staff in country will visit the supplier to determine capacity, quality, and relative pricing conditions.

This process avoids the long learning curve of in-house employees to perform a similar task, and takes advantage of the hands-on experience of SMI associates to make the right choices in this critical evaluation stage. Through the utilization of in-country sources that have extensive experience with US and European companies, the miscommunications from cultural and language differences can be virtually eliminated. In addition, SMI provides blueprint and technical specification translation that communicates clear and consistent requirements for each bid package.

How will solutions be developed to address these problems ?

As part of the services provided by SMI, any anticipated risks will have mitigating actions identified with a cost/benefit associated with the recommendation. SMI will offer real world solutions to minimize the risk of potential trouble areas, and develop procedures to manage those risks over the life of the program. Due to the extensive experience of SMI associates in best of class global sourcing activities, it is anticipated that few problems will have been encountered for the first time.

Typical solutions to minimize risk can range from identifying all actions and functional resources to accomplish an orderly transition from current suppliers to LCC suppliers, to minimizing logistics risks through consignment stocks or local warehousing of finished product.

Many of the quality or logistics problems experienced by companies engaging in international sourcing arise from incomplete planning or knowledge of the culture or business environment. Anticipating the various risks and addressing the issues in the planning phase will result in far fewer operational issues once the plans are implemented.

What makes SMI uniquely capable of providing appropriate solutions ?

Unlike the few large consulting firms offering low cost country sourcing services, SMI associates have all had considerable hands-on experience in executive or management positions with functional sourcing responsibilities. Having lived through the many challenges associated with international sourcing, SMI associates can anticipate potential issues and plan accordingly. Additionally, whereas many consulting firms provide recommendation for action but do not have the capability to perform the activity for the client, SMI can take on 100% or any percentage of the total task subject to client resource requirements and staffing levels.

For example importing product from international sources undoubtedly increases the risk of late shipments or delays. Logistics risks can be minimized through consignment stocks or local warehousing of finished product, but there is always a cost associated with such actions. SMI has extensive expertise in advising of the opportunities and risks and will consider the costs associated with any mitigating actions in the final logistics planning.

How will SMI price services that add maximum value to its clients ?

SMI has flexible payment options available to its clients. As Phase I scope can change significantly due to the availability of spend data and current supply management capabilities, pricing will be based on the agreed task plan as a set fee for this phase of the project. Considerable research by SMI is required to provide the comprehensive strategic assessment, so this cost must be recovered during Phase I. Subject to the data availability and scope of the subject commodities, some cost tailoring is possible and allows the client to pay only for the services desired. However as both SMI and the client are best served by complete success on each and every project, there are minimum scope requirements that will ensure a quality product is delivered.

Phase II will also be quoted as a set fee based on project scope, however the cost is directly proportional to the number of commodities included in the project so the client has complete control over the project cost. During this phase it is suggested that client management be involved in a supplier visit and cultural introduction to the local business environment. As SMI intends to develop a direct relationship between the client and the international supplier, this is an important step in the process and is suggested to be retained in the project scope.

Phase III will also be quoted on a fee basis relative to project scope, but as SMI stands behind its performance, this fee can also be negotiated as a percentage of savings. Therefore if the cost savings do not materialize as expected, the client pays only for savings delivered. SMI believes in payment for performance, and is confident in the abilities to deliver on cost savings.