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When it comes to Supplier Relationship Management (SRM), the focus is often placed on the supplier and the management pieces, and the relationship piece falls by the wayside. This is especially true when businesses that have been sourcing raw materials, components and finished products from the U.S., Canada, and, in some cases, Mexico, try to source from Asia.
Asia is a whole new game--one in which the "R" in SRM has never played a bigger role. With the promise of capitalizing on the low cost labor in Asian counties, businesses have been in an incredible rush to capture the economic benefits. However, companies that do not do their homework are often surprised to find that the business practices they are accustomed to in North America do not work as well in Asia.
"Moving too quickly on sourcing decisions in low-cost countries may prove to be a short-term tactic," notes Steven Ganster, Managing Director of Technomic Asia and author of The China Ready Company. "Businesses need a long-term strategy that focuses on relationships for effective sourcing in Asia, and the most successful sourcing companies have placed a premium on developing relationships with their suppliers. These relationships are the backbone of SRM," he says.
Survey: Been There, Done That: Sourcing in China and other Asian countries is not that new. Companies that have been active in Asia for many years have learned how to be effective. However, less-experienced businesses that are accelerating their spending in Asia are struggling.
Tompkins Associates recently surveyed companies that averaged nearly 10 years of experience in sourcing in China and more than 6 years of sourcing in all other Asian countries.
Sources for Sourcing: Companies that are looking to Asia to reduce costs need to understand that if the expertise and know-how are not available internally, they have the option to seek guidance on country-specific practices outside of their companies. The survey reveals that more than 70% of companies use internal resources for sourcing from Asian countries, leaving nearly 30% that are receiving help from external organizations.
External agencies may also help with finding suppliers in Asia. However, 50% of companies completing the survey use a formal internal process. Roughly 20% have an informal process, and the remainder is assisted by outside resources.
Once a supplier is identified, the qualification process is completed. Only about 10% use a third party to qualify suppliers, and nearly two-thirds use a formal internal process.
Discerning and Diminishing Differences: In the survey, companies also chose qualifying suppliers as well as logistics/transportation, supplier communication, and on-time delivery as their areas of main concern for Asia sourcing. Most companies report that they have put metrics in place in these areas--but to a far less degree than is generally found with North American suppliers. Over time, this gap is expected to narrow.
Another differentiating factor between suppliers in North America and Asia involves relationship requirements. Companies note communications, quality and auditing resources, contract requirements, and the use of logistics providers as the major areas that they handle differently in Asia than they do in North America.
Asian Sourcing in Retrospect: As the saying goes, "hindsight is 20/20." Looking back on their approach to relationships with Asian sources, most of the surveyed companies say that if they had it all to do over again, they would not change their basic approach.
However, respondents say they would try to better understand the cultural and local issues that impact sourcing decisions. Those that would change their approach say they would benchmark other regions and acquire a better understanding of the total cost model (e.g., labor, material, logistics, and transportation) for the sourced goods.
Companies that have not made the move and are thinking about sourcing from Asian countries can learn from those with experience. The top 10 lessons learned from the survey are listed below as a guideline for companies that are newcomers to Asian sourcing.
1. Have a presence in the area and at the sourcing company, and personally travel there often. Relationships cannot be built from long distance and via e-mail.
2. Obtain expertise in the complex and varied rules and practices of Asian countries and companies. The rules and practices we follow with North American companies are generally different in Asia.
3. Pay particular attention to product quality. This is always a sound business practice in a sourcing environment, but is much more significant when language and cultural barriers exist.
4. Be prepared to accommodate extended lead times. Also, evaluate the cost and customer satisfaction side of longer lead times.
5. Understand the importance of building long-term business relationships with Asian suppliers. Asian companies generally have a longer term view and place more emphasis on relationships than North American companies do.
6. Fully understand supply chain capacity and potential constraints that may create barriers for delivery from Asian suppliers. Consider capacity and throughput at each point in the supply chain.
7. Develop supply contingency plans. To ensure that the potential for disruption is minimized, make supply alternatives available.
8. Don't assume anything. Thorough due diligence and attention to detail is required in all aspects of the relationship until both parties are confident of each other's capabilities.
9. Implement a solid monitoring and audit plan. This is a good rule for all sourcing activities because it requires focusing on sources.
10. Maintain communication, communication, communication. As the saying goes, "The problem with communication is the illusion that it has occurred." Never take communication for granted.
Conclusion: Although a number of companies are just now seeing the advantages of sourcing from Asia, the first-adapters are leading the way and leaving a trail of lessons learned in their dust. Because the advantages of higher profits and lower costs have such appeal, some businesses have jumped in too quickly and failed.
Companies need to take time to form a long-term strategy with a focus on relationships with their suppliers. The strategy should also include knowing real strengths and weaknesses and being able to understand when they need to seek help from an external organization. No one can be an expert in every area, and seeking expert guidance more than pays for itself in the long run.
Finally, some North American companies have a difficult time breaking tradition. As time marches on and more companies begin to source from Asia, the differences between procedures and metrics will begin to diminish.
But as businesses progress and expand their supply chains, it is crucial to always keep the "Big R" in SRM in the forefront. Communication is key, and building relationships that work is a MUST for success in today's global marketplace. Cultivating and maintaining the "relationship" in supplier relationship management is the single most important issue facing global businesses today.
About the Authors: Bruce Tompkins is a Principal for Tompkins Associates, the leading provider of global supply chain services, distribution operations consulting, technology implementation, material handling integration, and benchmarking and best practices. His expertise includes traditional industrial engineering and manufacturing, materials management, logistics, and benchmarking/best practices. He also possesses an extensive leadership background and knowledge in manufacturing and distribution processes, lean manufacturing implementation, Six Sigma methodologies, ISO/QS Quality Systems, and benchmarking and gap analysis.
Colin Maxwell is a Senior Consultant for Tompkins Associates. He comes with a strong engineering background in mathematical modeling applied successfully in supply chain management. His expertise includes demand management & forecasting (including SAP--Flexible Planning), production scheduling, MRP integration on the manufacturing side, distribution & transportation network optimization, and inventory replenishment and optimization.
Steven Ganster is Managing Director of Technomic Asia, a Division of Tompkins Associates. He has more than 28 years of international consulting experience, primarily in Asia, and has completed over 600 assignments for many of the world's leading companies, assisting them with international market entry, growth strategy development, and sourcing operations throughout Asia and China since the early 1980s. In the area of sourcing strategy, Steve has helped western companies align their sourcing structure with corporate strategy, streamline their operations, and cultivate successful and long-term supplier relationships.
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