According to an Accenture survey, 230 global supply chain executives plan to double their low-cost country sourcing activities in the next three years; they also believe the savings achieved from such sourcing will increase by a third.
(Source: "Where East Meets West: Driving high performance in low-cost country sourcing")
Integrating with suppliers is a critical piece of the supply chain puzzle. To be effective, companies need to integrate with consortiums and trading partners.
Sourcing and Procurement involves developing system and collaborative approaches to products-and-services sourcing using volume, supplier relationships and technology to reduce external spend, while improving quality and supplier performance. Catenate services in this arena through its ‘Sensei program’ include current sourcing assessment; strategic sourcing; volume shipment, storage and JIT; manufacturing project management; Asian collaborative or Greenfield manufacturing feasibility, set up and market entry.
|Sourcing and Procurement involves collaborative approaches. to supplier relationships, which has a number of key challenges when dealing with Asian Low Cost Country suppliers.
Companies that contact suppliers direct in countries such as China, India and more recently Vietnam with requests for proposals often receive initial quotations and quality assurances that are hard to resist, only to find out further into the process that those statements are frequently misleading or incorrect. Intellectual Property (IP) is also an issue, with poor enforcement in many Asian Low Cost Countries. For Western companies, integrity is therefore a serious concern.
Although many suppliers in Asian low-cost countries have English-speaking sales people, difficulties tend to arise when they need to interact with Western executives and engineers to discuss more technical issues or when problem solving. Key personnel in Asian low-cost country suppliers rarely have sufficient command of English or other Western languages to engage in lengthy or detailed dialogue. The risk of misunderstanding and communication problems cannot be underestimated.
Local and International Industry standards not synchronized
Sharing drawings with suppliers who may use different technical standards can result in delays while the situation is evaluated and the differences clarified. Once again, misunderstandings may filter into the scenario. It may take Asian Low Cost Country suppliers an inordinate amount of time to understand written text explanations of required industry standards that may be self-explanatory in the West. Industry standards that are not synchronized with international standards—or with your expectations—can cause costly delays.
Risk management on delivery continuity
Longer lead times that result when sourcing from countries such as China and India require companies to adopt new approaches to risk assessment and mitigation. Many Asian Low Cost Country suppliers lack international trade or export experience, are unfamiliar with Western terms and conditions that offer the best pricing, and are not experienced with export requirements. Few export CIF, preferring Ex-Works instead. Western companies have to pick up the transportation costs and work with third-party logistics operators to secure the best terms. Western companies must also address the issue of payment terms. Asian suppliers rarely agree to 60 or 90 day terms with a new customer or early in a new relationship. Asian suppliers initial offer is typically prepayment. The negotiation gap is therefore considerable and can heavily impact budgeting, cash flow and revenue.
Lack of a holistic supply chain view
Supply chains have systematically improved in the Western world. Many Asian Low-cost country suppliers, on the other hand, lack experience with the most modern processes and are often unfamiliar with the high standards required, such as sequence deliveries combined with just-in-time, vendor-managed inventory solutions or electronic communications. These supply chain aspects are important when determining which categories can be appropriately sourced from suppliers based in many Asian low-cost countries.
Internal organizational barriers
When sourcing in low-cost countries, there is a clear need to ensure that the internal organization has been adapted to suit new circumstances. For example, sourcing in low-cost countries creates a number of change management issues. Internal buyers who have spent time and effort fostering their existing supplier base are often reluctant to begin the relationship-building process again, especially since they will need to accommodate often considerable differences in cultures, languages and time zones
Catenate’s experience and insights, coupled to Malaysia’s ‘maturity’ and world class infrastructure, enables us to successfully address many of the issues associated with Asian Low Cost Country Sourcing to assist you in leveraging these opportunities to drive business value into your enterprise.
With its senior managers all being based in the sub contract manufacturing and BPO sector in Malaysia for over a decade. This hands on experience and constant 3rd party research on the Asian Low Cost Country business environment strengthen our opinion that Malaysia is the most risk adverse and conducive Asian destination for outsource or offshore supply chain initiatives.