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Dragon SourcingYour Tailored Approach to Emerging Markets
Purchasing Office Assessment – retail industry
Hong Kong – October 10th, 2013
© 2013 Dragon Sourcing. All rights reserved.
Dragon Sourcing’s Suite of Offerings
Procurement Intelligence to deliver you insight into markets toenable effective procurement decision.
Global Sourcing to identify, qualify & secure capable andcompetitive suppliers in emerging markets.
Procurement Outsourcing of IPO’s (international procurementoffices) to increase productivity, reduce risks and fixed costs andrapidly scale up
Procurement Capability Enhancement to Improve the productivity and effectiveness of your procurement function in emerging markets, especially in China
We can cover global emerging markets through our owned offices and our network of procurement sub-contractors
© 2013 Dragon Sourcing. All rights reserved. 3
LondonParis
Brussels
GrazLjubljana
Warsaw
Budapest
Istanbul
Tel Aviv
Mumbai
Shanghai
Hong Kong
Ho Chi Min City
Bangkok
Jakarta
Johannesburg
Melbourne
Sao Paulo
Guadalajara
PhoenixDetroit
Addis Abeda
Geograhies covered by DS network of procurement subcontractors
Prague Kiev
Bucharest
© 2013 Dragon Sourcing. All rights reserved.
Our clients are medium to large size corporations across a wide range of industries
Transportation Financial Services
Retail DIY
HospitalityHeavy Machinery
Food & Beverage
Energy/Chemicals
Automotive
Consumer Goods
Construction
Packaging
Industrial Products
Pharma / Medical
© 2013 Dragon Sourcing. All rights reserved.
Agenda
5
1. Introduction
2. Spend Analysis
3. Procurement Assessment
4. Location analysis
5. Recommendations and next steps
Appendix
© 2013 Dragon Sourcing. All rights reserved.
Background & Objectives
6
Background• The Client (Gardening retailer)is looking to map The Client’s
China Procurement Operations against best practice and determine a route forward.
Dragon Sourcing Value Add:• Practical delivery approach, delivered rapidly by local Chinese
resources.
• Trusted models & processes, tailored to your organisation.
• Track record of helping Western companies improve their sourcing and procurement operations in China and across Asia.
Objectives:The objective of this assessment is to assess the current state of The Client’s China purchasing operations and recommendoptions for improvement, including:
1. What are the operational improvements required to achieve best practice?
2. Where the China operations should be ideally be located?
3. What are the required interface and division of responsibilities between the Europe and China purchasing operations?
4. What are the benefits of outsourcing the China operations to to Dragon Sourcing?
Milestones
Delivery Approach:The Assessment phase is scheduled for a 5 weeks duration
Steps Owner W1 W2 W3 W4 W5WS1 Spend Analysis
1 Collect purchasing data based on what is available (cf . Data collection Pack ) DS / Client
2 Analyze spend per category, per supplier. Detail workload per buyer. DS
WS2 Process, Deployment, Organization Assessment
3Review existing process and organization: roles, responsibilities and deployment, set of existing tools, usage, consolidation, and reporting.Review training process on tools for new buyers
DS / Client
4 Review Europe-China interface and division of responsibilities. DS / Client
5Analyze the suitability of the current China office location (considering factors including proximity to supply base, costs of operating at location, availability of skilled staff)
DS
WS3 Communication Plan
5 Prepare and get approved detail questionnaire in English and Chinese DS
6 Prepare a communication plan for the purchasing organization DS / Client
7 Communicate assessment program to all the buyers GM
WS4 Interviews
8 Run interviews for each of the buyers (24) DS
WS5 Feedback and recommendations
9 Analyze findings and provide recommendations and tools to achieve best practice, including outsourcing proposal from Dragon Sourcing DS
10 Agree on next steps i.e. Implementation DS / Client
© 2013 Dragon Sourcing. All rights reserved. 7
© 2013 Dragon Sourcing. All rights reserved.
Agenda
8
1. Introduction
2. Spend Analysis
3. Procurement Assessment
4. Location analysis
5. Recommendations and next steps
Appendix
The yearly spend is about USD 50 M through 12,000 PO’s, split across 6 big spend segments...
© 2013 Dragon Sourcing. All rights reserved. 9
0
500
1,000
1,500
2,000
0
5
10
15
20
25
Wild Bird Care Landscaping Growing Garden Living Stands Pet Accessories
M USD
Total UK Spend per Segment from Sept 2012 to Aug 2013‐ USD 51.7 M / 11,742 po
Spend (M USD) # of PO
# of
PO
The Europe spend is split across a wide range of product categories….
© 2013 Dragon Sourcing. All rights reserved. 10
0
250
500
750
1,000
0.0
2.5
5.0
7.5
M USD
Top 10 categories spend = USD 34.6 M / 5,853 PO
Spend (M USD) # of PO
# of
PO
# of
PO
# of
PO
# of
PO
0
500
1,000
1,500
2,000
0
500
1,000
1,500
2,000
k USD
21 low categories spend = USD 17.1 M / 5,889 PO
Spend (M USD) # of PO
# of
PO
# of
PO
Top 10 Categories – USD 35 M 21 Low Categories – USD 15M
The spend is highly dependent on 2 countries as China and the Europe account for 85% of the total. With costs and currency increasing in China, this raises the question about how actively global sourcing opportunities are pursued.
© 2013 Dragon Sourcing. All rights reserved. 11
0
25
50
75
100
125
150
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10
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25
30
M USD
Spend per supplier geographical originTotal USD 51,7 M / 235 Suppliers
M USD # of Suppliers
# of
PO
LCC Unknown, but no in ChinaHCC
The sourcing strategy appears more driven by where the buyers are located (Europe and China) rather than by an active pursuit of where the new opportunities are (“Footprint legacy dilemma”)
© 2013 Dragon Sourcing. All rights reserved. 12
BE - WBC - Mixes & Blends (6.7 M / 13%)
UK
China
Denmark
TBD (notChina)
BD - WBC - Straights (5.0 M / 10%)
UK
China
TBD (notChina)
BF - WBC - Suets (4.5 M / 9%)
UK
China
Denmark
Germany
TBD (notChina)
HG - Hanging Gardening (3.5 M / 7%)
UK
China
India
New Zealand
TBD (notChina)
GL - Garden Lights (3.3M / 6%)
China
TBD (notChina)
GH - Greenhouses (2.8M / 5%)
UK
China
Denmark
Netherlands
SC - Screening (2.3M / 5%)
UK
China
Germany
Poland
TBD (notChina)
BG - WBC - Feeders (2.3M / 4%)
UK
China
Latvia
TBD (notChina)
BH - WBC - Accessories (2M / 4%)
UK
China
Latvia
Poland
TBD (notChina)
GK - Grow It (2M / 4%)
UK
China
France
Germany
India
Other 21 categories (17M / 33%)
UK
China
Denmark
India
Israel
Latvia
Poland
Sri Lanka
© 2013 Dragon Sourcing. All rights reserved.
Agenda
13
1. Introduction
2. Spend Analysis
3. Procurement Assessment
4. Location analysis
5. Recommendations and next steps
Appendix
The current division of responsibility sees an exaggerated involvement of the Europe team in the Supplier Selection, Contracting and Procurement operations processes of the China and other Asian spend
© 2013 Dragon Sourcing. All rights reserved. 14
Europe Responsibility for China Responsibility forCurrent Responsibility
CommentsOther Asian Spend
ChinaSpend
Other Asian Spend
ChinaSpend
Category pricingCategory Strategy & PlanPackaging StrategyProduct range strategySource decision (country)
- Exclusively a Europe activity. There is no sharing of category vision with the China team.
- Limited proactivity from China team in terms of market intelligence
Developing Sourcing PlanSetting PoliciesSetting Targets
- Limited sourcing planning is conducted by Europe Category Management/Purchasing
- Policies are defined by Europe Team- Limited targets (Service Level) are set
and tracked by Europe alone. China team appears to have limited targets.
Tactical (NPI) & Strategic Sourcing- Supplier Identification- Supplier Screening- Supplier Quotation- Supplier Audits/Sampling- Supplier Negotiation- Supplier Contracting
- Varies by Category Manager. Significant Europe team involvement in Supplier Identification and Negotiations in China market.
- China team conducts supplier screening.- Taiwan & Hong Kong handled by Europe
team.
Manage POPayment & shipment detailsConduct pre-shipment QCArrange and monitor logisticsDelivery consolidationManage supplier performance
- China team acts a like a messenger under the direction of the Europe team (passing on PO, chasing suppliers).
- Port consolidation from China is done by China Team.
Sourcing Planning
Supplier Selection & Contracting
Procurement Operations
Proportion of Responsibility
Not Responsible Fully Responsible
Category Management
The real issue is in the nature of the relationship between the Europe and China teams: arm’s length and top down vs. a trusted partnership
• There appears to be an inherent lack of trust and confidence in the Europe team about the China team inherent capability
• This results in the Europe team wanting to take control of the entire sourcing process and micro-managing the China team
• The wide scope of the Europe Category Management Team, with each Category Manager dribbling tasks to the China team, together with the significant variation in who owns the supplier relationship, causes confusion in the China team.
• …which in turns leads to the China team feeling disempowered and adopting a purely reactive attitude waiting for instructions and weary of taking initiatives.
• This becomes a self-fulfilling prophecy– Lack of trust leads to lack of information sharing and lack of empowerment – This in turns leads to China team members being contained in same tactical and operational tasks and
hence an inability to develop their skills– Which in turn exacerbates Europe team perception that China team can not raise their game
• This vicious circle is reinforced by (1) language issues, (2) time zone problems which limits ability to communicate and (3) IT system disconnect which leads to duplication of work, inconsistency in data and slow responses (slow driver)
© 2013 Dragon Sourcing. All rights reserved. 15
However, significant efforts have been deployed on all drivers of the Procurement Value Creation framework within the China team over the last 12 months
Ena
bler
sP
roce
ss
People
Organization
Systems
Sourcing Planning
Supplier Selection & Contracting
Procurement Operations
Procurement Performance
Res
ults
© 2013 Dragon Sourcing. All rights reserved. 16
Comments
• Cost of operating the Rep office is in higher quartile of performance (1,0% of spend value).
• “Best Buy” Plan intended with apparent focus on price, delivery, quality and ethic• Right Policy set exists • Volumetric dashboard has been implemented
• e-Auction initiative has been launched which has challenged incumbent suppliers • Good geographical spread of suppliers in China• Suppliers consolidation program started• Fair set of documentation regarding suppliers capabilities and profiles. A supplier Manual is under preparation
• Good process in place to classify suppliers in terms of quality risk and to determine QC frequency based on claim and defects history.
• QC policy in place to systematically conduct QC on all new products and new suppliers• QC policy in place to have suppliers carry out a "self QC" if supplier considered low risk
• Product Development / Suppliers management appears to be a young team with suitable education background• Quality team is under construction with some experienced skills people. However should be developed• Turnover reasonably low, allowing good service continuity
• Organization structure seems in line with industrial best practices with clear separation between Product Development/Suppliersmanagement, Procurement, Shipping / Documentation and TQE
• Dimension of the development team seems reasonable in relation with workload.
• All suppliers met during fairs and other event are recorded in the system. Should be used for Strategic Sourcing program
The right set of policies exist; they need to be better explained, “localized”, translated, and enforced
Policy File Comments
Supplier Code of Conduct • Too generic. Should be localize to China labor environment, translated, explained and enforce
Anti-corruption, Bribery, Conflict of interest and Whistleblowing policy
• Staff and suppliers should be trained and alerted on the risks accounted
IT and Acceptable Use Policy • Deployment i.e. number of staff who signed the policy and random check performed to be analyzed
© 2013 Dragon Sourcing. All rights reserved. 17
China suppliers location seems to be in line with China “offering”. However, new sourcing spots such as Inland China (GO WEST) should be more aggressively investigated
© 2013 Dragon Sourcing. All rights reserved. 18
x
x
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0%
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# of
sup
plie
rs
% o
f spe
nd
Province
Suppliers per province
% of spend
# ofsuppliers
A good set of templates and documents have been developed regarding the supplier selection processes. Here again they need to be better deployed
Document File Comments
The Client Supplier Manual 2013 • Initiative launched in 2013. Not finalize yet (delayed due to e-Auction initiative).
New Supplier Assessment Report • No report tracking and analysis
Supplier Site Profile • Right level of information. No reporting on number of suppliers with vs. without profile. Profiles not analyzed
Supplier profile • Right level of information. However, not used for supplier selection through a score card
© 2013 Dragon Sourcing. All rights reserved. 19
The organization structure seems in line with industrial best practices with clear separation between Sourcing (organized by category) and Procurement Operations (shipping, documentation,…) and TQE
Product Development / Suppliers managementTQE
Shipping
Procurement
Documentation
Despite these significant achievements, we still have significant room for improvement
Ena
bler
sP
roce
ss
People
Organization
Systems
Sourcing Planning
Supplier Selection & Contracting
Procurement Operations
Procurement Performance
Res
ults
© 2013 Dragon Sourcing. All rights reserved. 21
Comments
• Supplier base in China remains too fragmented • Despite recent challenges to the established supplier base, incumbent suppliers in east coast of China still too predominant
• “Best Buy” procurement plan too limited in scope vs. what we would expect in a procurement plan• Policies exist but Staff not fully trained and suppliers not properly informed• Dashboard needs to include KPIs such as “costs savings”, “quality”, “delivery”, “innovation”,…
• Strategic Sourcing process as we understand it not implemented, team highly focused on tactical (NPI) and operational activities.• Tactical Sourcing (NPI) process not properly documented. (However process seems to well internalized by team)• Supplier selection is manly driven by price without using a balanced score card and / or cost breakdown• Supplier screening is limited to China only, should tap into rest of Asia• Limited use of contracts, only Pos
• AQL techniques not implemented. Criteria and tolerances to be created and developed with PD and Category manager• No suppliers performance monitoring tools are implemented• Buyers should only participate to QC on an exception basis, their time should be focused on strategic and tactical sourcing activities
• Motivation is low (57 on average out 100) due to low visibility about the company’s strategy and development due to limited initiatives to motivate• People skills are adapted to tactical and operational requirements not to strategic sourcing skills.• Limited opportunities given to the staff to grow in skills and scope of responsibilities.• No clear JD and people performance is not measured, no formal assessment tool in place
• Need to rebalance relationship between the Europe and China teams• No Market Intelligence cell.
• Very little support for sourcing process (strategic or tactical), local systems is basically transactional.• Supplier Master Data has to be created in both Europe and China systems (Duplicate work)
0%
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60%
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100%
0% 20% 40% 60% 80% 100%
% o
f spe
nd
% of Suppliers
% of Spend (USD 27.8 M) vs. % of number of suppliers (148)
China Focus: There is further room for supplier consolidation.
© 2013 Dragon Sourcing. All rights reserved. 22
80% of the spend is handled by 27% of the
suppliers
5% of the spend is handled by 47% of the suppliers.
27%
Results - Performance
China Focus: About 60% of the suppliers are receiving less than 20 PO’s per year, corresponding to only 5% of the spend
© 2013 Dragon Sourcing. All rights reserved. 23
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China Focus ‐ Yearly POs per supplier148 Suppliers / 6,430 PO
# of suppliers M USD
# courses
# courses
# courses
000 po
# courses
# courses
# courses
MEU
R
# of
sup
plie
rs
Results - Performance
China Focus: And this consolidation should be done on all categories
© 2013 Dragon Sourcing. All rights reserved. 24
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M U
SD
China Focus: Top 10 categories Spend per category vs Top 3 suppliers spend per category
Category Spend (MUSD) Spend with Top 3 suppliers (M USD)
# of suppliers
Results - Performance
0
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# of
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Last 21 categories Spend per category vs Top 3 suppliers spend per category
Category Spend (k USD) Spend with Top 3 suppliers (k USD)
# of suppliers
A more comprehensive plan covering all key topics of the value creation model, needs to be developed
Key elements of a procurement plan
• Procurement targets for all:• “results” KPIs (cost savings, quality, delivery,…)• “enablers” KPIs
• List of sourcing projects required to achieve the “results” targets:• indicating bottom’s up how the sum of the projects savings will allow to reach overall savings target• indicating what levers will be used to achieve savings, e.g.:
• Supplier development projects to improve quality, delivery,…• Spec changes• Sourcing new suppliers• Etc…
• List of projects required to achieve the “enablers” targets: People plan (recruiting, training, development,…exchange program between Europe and China !!) Systems to implement/improve
With all projects being underpin by a resource plan and a budget approved by management
© 2013 Dragon Sourcing. All rights reserved. 25
Process – Sourcing Planning
A dashboard needs to be implemented with a full set of KPIs
KPI Definition
% of spend managed with suppliers selected through Strategic Sourcing Programs • Measuring the deployment of the Strategic Sourcing Process
Supplier Reduction [%]• Based on active suppliers last 1.5 year• Should include the number of suppliers rejected and the number of
new suppliers selected
Quality • % spend value with “PASS” QC• % of containers with “PASS” QC
Delivery Reliability • % of POs delivered on time
Savings from Sourcing• Price reduction (based on previous paid price);• Cost avoidance (calculated against set of index);• Price change based on Specs changes driven by purchasing
Code of Conduct • Spend with suppliers who signed the business Conduct
Perfect PO • Comparing actual invoice against PO in :
• China System• Europe System
On time payment • on time for +/- 5 days
© 2013 Dragon Sourcing. All rights reserved. 26
Process – Sourcing Planning
Fundamental to achieving breakthroughs will be the need to deploy a strong strategic sourcing capability to complement current tactical and operational activities
© 2013 Dragon Sourcing. All rights reserved. 27
Process – Supplier Selection and contracting
Process Area Relative toBest-in-Class Gap Gap (con’t)
Supplier Identification
• Tendency to use only internal referrals, without considering all market
• Sourcing is driven by new product / category demand
• No formal and systematic new supplier identification process for existing categories (advance sourcing)
• No outside China Sourcing and limited Go West sourcing
Supplier Screening• Request for Information seems OK, but not used for screening
suppliers.• Supplier Profiles exists, but rarely used
• Sourcing request come through email in different ways. No clear spec. from request.
Supplier Quotation • Cost breakdown and analysis needs to be implemented for critical categories • Supplier Quotation not in formal and effective template
Supplier Selection • Suppliers are selected through samples and prices• Limited cost analysis (formal index price tracking)
• No balanced scorecard covering suppliers capabilities and competitiveness is performed, although all information exists through the RFI
Negotiations andContracting
• No contracts are in place, only PO’s• Phone and e-mails negotiation
• Legal not sufficiently involved in final non standard contract validations
Supplier Performance Monitoring
• No supplier scoring and monitoring is in place • .No periodical performance review with suppliers
Continuous Improvement
• Limited challenge to qualified supply base through re-sourcing exercises., cost reduction plans, delivery and quality improvement
• No supplier development program in place
Level of Achievement
Not Achieved Fully Achieved
Building those strategic sourcing skills will be key to moving to a more balanced relationship between the Europe and China teams
© 2013 Dragon Sourcing. All rights reserved. 28
Europe Responsibility for China Responsibility forRecommended Responsibility
CommentsOther Asian Spend
ChinaSpend
Other Asian Spend
ChinaSpend
Category DefinitionOpportunity AssessmentCategory Strategy & PlanCategory Review
- China team consulted during category strategy & category review so they understand bigger picture.
- China team bringing market intelligence to the fore (new product ideas, competitors’ sourcing strategy,…)
Developing Sourcing PlanSetting PoliciesSetting Targets
- Europe team would collaborate with the China to develop the sourcing plan
- China team would have policies relevant to Asian markets
- China team would work towards KPIs and targets
Supplier IdentificationSupplier ScreeningSupplier QuotationSupplier Audits/SamplingSupplier NegotiationSupplier Contracting
- China team would take primary responsibility and initiative for both strategic and tactical sourcing from Asian markets for the demand provided by the Europe team.
- China team would be involved in all Asian supplier relationships.
Manage POPayment & shipment detailsConduct pre-shipment QCArrange and monitor logisticsDelivery consolidationManage supplier performance
- China team would be responsible for procurement operations from China and other Asian markets.
- Europe team would be consulted for exceptions and supplier performance reviews.
Sourcing Planning
Supplier Selection & Contracting
Procurement Operations
Proportion of Responsibility
Not Responsible Fully Responsible
Category Management
Process – Supplier Selection and contracting
QC protocols are far from being relevant
Mains issues regarding QC protocol
• Missing criteria to measure• No tolerances for criteria that do exist• No breakdown into critical, major and minor faults• No statistical calculations to determine sample size• No description of "how to measure“• Etc.
© 2013 Dragon Sourcing. All rights reserved. 29
Process – Procurement Operations
Name English(out of 5)
Sourcing Skills(out if 100)
Motivation(out if 100) Comments
3 60 57• The Client is his first job, 5 years experience• Understand process but unable to explain.• Luck of category planning skills• Need management training and guidance
4 60 52• 3 years with The Client, 4 years experience• Seems to understand the sourcing and procurement concept• No reporting activities or project follow up file
4 57 72 • 3 years with The Client, 4 years experience• Missing clear process to b deploy, visibility and planning• Missing supplier selection practices on top of selection by price• With proper training and mentoring, could take a management role
2.5 57 53• The Client is her first job, 3 years experience. • Follow current operational method, communication and motivation ok. • Doesn’t have category management concept, lack of understanding of the suppliers. • Doesn’t understand product very well.
2.5 47 51• 2 years in The Client, total 4 years working experience. • Know main suppliers and spend. • Understand category’s products. • Need improve category and supplier management .
2 43 51• 2.5 years in The Client, total 5 years working experience.• Proactive, communicate with suppliers well. • Understand products , manufacturing , main suppliers and spend well. • Need enhance category and supplier management .
2 43 53
• The Client is her first job, 3 years experience. • Follow current operational method. • Doesn’t understand product very well. • Not very motivated, think current work load is heavy. • Doesn’t have category management concept, lack of understanding of the suppliers.
3 43 68• Less than one month in The Client, 8 years working experience. • Has factory experience, understand manufacturing and some kind of products. • Has sense to analyze market, client’s requirement.• Help Linda to handle inquiry, wish to take more responsibility.
© 2013 Dragon Sourcing. All rights reserved. 30
Enablers - People
The current PD team is grouped around an average competency score, typical of a resource base focused essentially on tactical activities
© 2013 Dragon Sourcing. All rights reserved.
Agenda
31
1. Introduction
2. Spend Analysis
3. Procurement Assessment
4. Location analysis
5. Recommendations and next steps
Appendix
Location recommendation
• Given that buyers are expected to identify and qualify best possible suppliers wherever they are located and travel to meet them; the location decision tends to be a trade-off between:– Cost of operating the buying office (salaries, rent, taxation,..)– And the ability to attract and retain the best talent
• The Client has gone for the cost side of the trade-off decision which explain why the operational costs in relation to the spend managed is low (around 1%)
• Clearly this has impacted the “talent” side of the equation which explains to some extent the imbalance Europe vs China team relationship
• However, we are of the opinion that it better to maintain the office in its current location to take advantage of the team’s experience and knowledge and to:– Train them into improving their sourcing, English, communication and project management skills– Recruit selectively some new talent of the right caliber
• ….Rather than rebuilding from scratch in a major hub like Shanghai
© 2013 Dragon Sourcing. All rights reserved. 32
© 2013 Dragon Sourcing. All rights reserved.
Agenda
33
1. Introduction
2. Spend Analysis
3. Procurement Assessment
4. Location analysis
5. Recommendations and next steps
Appendix
The Client needs to launch a strategic sourcing program on key categories….
© 2013 Dragon Sourcing. All rights reserved.
• As a means of generating further breakthrough savings (over and above the ones generated by the e-Auction initiative), creating momentum and training The Client resources in critical sourcing skills, The Client needs to launch a strategic sourcing program on 5-6 categories, e.g.:– TBD
• An initial analysis would need to be conducted to identify list of countries to involve in the process based on some high level criteria such as– Production and export numbers– Import duties into Europe, US and Australia– Number of suppliers identified– Etc…
• Then each category would be taken through the DS strategic sourcing methodology:– Needs analysis– Supply market research– Define category strategy – RFI-RQ process– Suppliers audit– Negotiation strategy development– Supplier selection and contracting– Contract implementation
34
…and launch a capability enhancement program to ensure the sustainability of the savings program over time and to fix the relationship issue between the Europe and China teams
• Procurement Planning/Target setting– Develop new KPI dashboard – Develop new Procurement Plan format
• Organizational redesign– Rebalance roles and responsibility between Europe and China team– Review / finalize job descriptions and competency model– Create Market Intelligence cell to help identify new countries and new sources
• People– Develop people assessment tool– Based on assessment gap analysis, develop training program and recruiting plan to raise the China team game– Launch exchange program between Europe and China to help build the “trust gap”
• Quality Control– Develop AQL QC protocols for all key products
• Systems– Launch a Europe / China system integration project
© 2013 Dragon Sourcing. All rights reserved. 35
The Client has 2 options for implementing the transformation program: (1) being supported on a consulting basis or (2) outsourcing the China Procurement Office
2. Full Outsourced China Procurement Office
Advantages– Lower costs to implement the transformation
program– Value of a contract with an external service provider
operated as a profit center which forces clear definition of service levels and expectations vs. internal solution operated as a cost center
– Flexibility to scale the procurement operations to align with demand.
– Ability to leverage global network of service provider to source in other countries than China
– Potential to take advantage of volume leverage (if service provider aggregates across multiple clients)
© 2013 Dragon Sourcing. All rights reserved. 36
1. Consulting Support
Advantages– Build and keep the capability in house and hence
keep full rewards that come with the value creation– Maintain full control over the capability (but
outsourcing risks can be mitigated through reversibility of the contract)