Globalization Makes Procurement King!

Decrease Font Size Increase Font Size Text Size Print This Page Send by Email

Globalization has been the dominant economic trend for more than two decade. Not only has it fundamentally changed the world we live in, but it has changed procurement and buying too.

The Globalization Of Procurement

Globalization is the high-octane fuel propelling procurement to new levels. It has transformed procurement’s role, scope and importance, transforming it from a bureaucratic order filling function to a key business driver.

Today’s corporation stretches further than ever before. It sources from low cost economies and sells into newly emerging markets. It transcends borders, cultures and time zones. Like the marketplace it serves, it is global.

Today’s most successful global corporations – including Apple Dell and Amazon – owe their success to a new form of procurement. They could not operate successfully in a global market without an effective and integrated procurement, supply chain and logistics function.

But, if global companies owe their success to procurement, so do some of the world’s fastest growing economies. In particular, the emergence of China and India as economic superpowers pays testimony to the global trinity of procurement, supply chain management and logistics.

The Global Supply Chain

Globalization has changed the shape of the corporation and of procurement too. The once vertical large corporation has been disassembled into little pieces and spread around the globe in the form of a supply chain. It is composed of hundreds, if not thousands of tier one suppliers, and a great many more tier 2, tier 3 and raw material providers across different geographies, jurisdictions and time zones.

Have your customers started to think supply chain, rather than simply procurement?

Globalization places great demands on the supply chain, in particular the challenge of aligning demand and supply. The requirement is to maximize product availability and supply flexibility while minimizing costs, inventory and investment levels. That is no easy task.

Outsourcing – A Core Competence

You control what you own, but today’s corporation no longer owns large portions of its supply chain. It has divested of factories, warehouses, replacing production with procurement and supply chain management.

Ford, Taylor and Demming defined the business corporation of the last century – taking if on a journey from mass production to world class manufacturing. However today’s giant corporations build supply chains not factories. The global corporation has moved beyond JIT, Kaizen and TQM as the basis for competitive advantage.

How successful have your customers been in outsourcing?

Since the 1980s companies have been admonished to ‘stick to their knitting’ and to outsource the rest. But the quest for competitive advantage has had an unlikely twist. It has revealed the ability to outsource effectively – otherwise known as supply chain management – to be in itself the ultimate core competence.

The New Competitive Advantage

The competitive advantage of the modern enterprise is the sum of competitiveness of its global supply chain parts. But only if those parts are effectively orchestrated regardless of borders, cultures and time zones.

Are any of your customers suffering from poor coordination of their supply base?

The supply chain can be the ultimate source of competitive advantage. Supply chain partners are expected to lower costs while also delivering six sigma levels of quality and optimal fill rates. Increasingly they are also relied upon to fuel innovation. The development of key supply chain members is therefore a important priority.

Global Risks

The management of risk and building resilience into the supply chain is also key. After all, the list of potential disruptions to the global supply chain is a long one, including; strikes, transport failures, customs or tax changes, public health scares and so on. There are few insurance policies to cover such calamities!

Can you help your customers to minimize and manage supply risk?

In tandem with increased globalization, there is a trend towards a more centre-led approach to procurement, as organisations seek to ensure better coordination.

Globalization – Myth & Reality

Outsourcing is not a panacea for all. In the head-long rush to outsource, many companies have overlooked the challenges that it can bring. The headline savings in terms of labour rates, for example, have often blinded companies to the total cost equation and to longer term strategic considerations. This explains why some early outsourcing decisions have been reversed.

Have your customers realized the potential of supplier development initiatives?

Globalization drives complexity. It is important to realize that while there has been a trend towards the homogenization of markets, stubborn market idiosyncrasies persist. Take Coke-a-Cola, the most quintessentially global of brands – it is customised in more than a hundred ways to reflect different market tastes and preferences.

Implications For Sellers

The challenge for sellers is to think globally just like their customers. That includes helping customer to better manage their supply chain, to manage supply risk and to more cost effectively balance supply with unpredictable demand. It also requires making the mind-shift from supplier, to supply chain partner.