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Sourcing Savings in China

As noted in yesterday’s post [1], foreign companies account for 58.3 percent of Chinese exports, and the flow of businesses setting up manufacturing or sourcing operations in China continues to expand as they seek cost savings in order to remains competitive. But, according to a report from McKinsey and the American Chamber of Commerce (via an article from the FT), these companies are not taking full advantage of the opportunity, and are only achieving about one quarter of the potential cost savings. Reasons included:

McKinsey also noted that “foreign buyers [should] shift from ‘supplier management’ to ‘supplier development’…helping suppliers to perform better”.

Of course McKinsey is not the only big consultancy looking at this issue. AT Kearny’s “2004 Assessment of Excellence in Procurement [2]” study adds the following:

I have also written about these issues before, and pointed out the value of procurement audits (see here [3]). Some of the problems that are often encountered when sourcing in China were outlined in that post, including:

China does present a valuable sourcing opportunity, even for smaller companies, but the process needs to be put in place as part of a strategic plan, with adequate resources, and a full understanding of final costs (not just the quoted supply cost, but logistics, management etc.). Luckily the good people at McKinsey, AT Kearny and – of course – China Business Services, are there to assist!

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