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How manufacturers can turn sourcing into a competitive advantage

A Canadian perspective on a global Deloitte report, “Innovation in emerging


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In recent years, manufacturers have faced a barrage of public attention focused on problems related to product safety, product quality and the environmental implications of foreign production. For manufacturers with a global supply chain, these issues call for robust response strategies. These are precisely the types of solutions set out in “ Innovation in emerging markets: Managing product sourcing risks in emerging markets ”, an annual study conducted by Deloitte’s global manufacturing industry group.

For manufacturers that do not source globally, particularly those in Canada, these challenges may seem like validation of their decision to stay local. But according to Kurt Ritcey, a partner and leader of Deloitte Canada’s sourcing and procurement consulting practice, this view may be overly simplistic.

"A company’s ability to assess risks related to individual suppliers, conduct quality assurance and manage the entire supply chain can be a source of sustainable competitive advantage."  
— Kurt Ritcey

Facing the challenges of global sourcing
Sourcing from emerging markets remains fraught with challenges. According to Deloitte’s study, manufacturing executives anticipate a greater demand for higher standards and transparency, upgraded testing, and more information to allay fears about product safety, quality and environmental standards. These demands for higher standards will drive up costs — which are already evident in some areas of the supply chain. For instance, some suppliers have begun requesting higher prices to reflect their costs of complying with more stringent standards.

“Seeing these trends, Canadian manufacturers can be forgiven for concluding that global sourcing can be scary and costly,” says Ritcey. “However, if they focus only on the risks and reach a decision to avoid global sourcing, without conducting an analysis of their business needs, they are making a mistake,” he asserts. “Prudent decisions can only be made after thoroughly considering if global sourcing makes sense for your particular business, considering both risks and rewards.”

Tackling the risks of a global supply chain
When sourcing from emerging markets, successful global manufacturers work to mitigate the risks, rather than avoid them. If your organization employs a global supply chain, here are some effective response strategies to help manage the risks:

  • Conduct an objective analysis of your global sourcing capabilities to identify and close gaps
  • Upgrade your safety, quality and environmental standards, and communicate those with partners to facilitate adherence
  • Identify emerging market suppliers who are willing and able to comply with rigorous standards
  • Improve supplier monitoring through frequent visits to supplier facilities, knowledge sharing to improve supplier skills and working conditions, increased testing levels, and more stringent contractual terms
  • Build a sustainable supply chain by maximizing transportation efficiency, reducing fuel and energy consumption, and minimizing inventory and waste

Ritcey recommends conducting a “should cost” analysis to determine what a particular product or part should cost in advance of seeking a supplier. “To do this effectively, manufacturers must understand what’s involved in producing the product — from labour and equipment costs to overhead and raw material costs,” he notes. “Although it can be complex, knowing your ‘should cost’ will save you money in the long term by helping you determine if a supplier can provide the quality and reliability you need at the cost they are quoting.”

Finding the opportunities
Although global sourcing remains complex, Canada’s manufacturers can gain an operational advantage if they take the time to get it right. As companies raise their product standards, they position themselves to build brand equity and command higher prices. They also improve their odds of long-term success.

“A company’s ability to assess risks related to individual suppliers, conduct quality assurance and manage the entire supply chain can be a source of sustainable competitive advantage,” Ritcey explains. “By turning management of a global supply chain into a refined art, manufacturers can more effectively capitalize on the benefits of global sourcing.”

To learn more about the sourcing best practices adopted by global manufacturers, read “ Innovation in emerging markets: Managing product sourcing risks in emerging markets .”

For a brief overview of the study’s findings as they relate to both developed and developing market manufacturers, you can also download an Executive Summary of this report.

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