BCG Study Identifies Ten Practices for Successful Sourcing from China

    Overcoming Internal Resistance Is Biggest Hurdle

    SHANGHAI, Aug. 1 /CNW/ - According to a new report by The Boston
Consulting Group (BCG), companies are encountering increasingly tough
challenges, both internal and external, as their sourcing operations evolve
through four stages of maturity--each more complex than the last. To progress,
companies must continuously renew themselves to meet the emerging challenges.
The study suggests that the stronger performers are better able to overcome
these challenges. Chief among them is internal resistance, which stems from
three main factors: poor understanding of Chinese suppliers' capabilities,
lack of incentives for sourcing success, and perceptions of risk. Also
important is top-down leadership. "Without top management support and drive to
remove roadblocks, it is difficult to drive changes internally," explains Jim
Hemerling, coauthor of the report.

    Released today by BCG's Operations and Global Advantage practices, the
report--Sourcing from China: Lessons from the Leaders--reveals that companies
with the greatest success at China sourcing follow ten best practices. These

    -   Defining a clear sourcing strategy with specific targets and plans.
        The study revealed that 87 percent of companies have sourcing
        targets, but only 33 percent have translated those targets into
        specific action plans.

    -   Integrating China suppliers and R&D into design. More advanced
        companies have found that products designed elsewhere limit the
        benefits of China sourcing. The key is to leverage Chinese supplier's
        capabilities by integrating the suppliers and China technology
        centers into product design.

    -   Gaining 100 percent transparency into sourcing volumes and savings.
        Leading companies have developed country-specific scorecards and data
        collection systems that provide clear transparency, but many still
        operate in the dark.

    -   Addressing real and perceived risks. These risks include fluctuations
        in exchange rates, changes in the costs of labor and materials, power
        outages, quality problems, and transportation delays. Addressing
        these risks is one of the most important practices for overcoming
        internal resistance.

    Other key findings:

    -   A growing number of companies are consolidating their local and
        global China sourcing activities to leverage scale and increase their
        negotiating strength with suppliers. In fact, 64 percent of the
        companies surveyed have merged these two functions under one

    -   Savings vary widely from a reported high of 60 percent of landed
        costs for commodities and products sourced from China, with an
        average landed-cost savings of more than 20 percent.

    -   The volume of China sourcing also varies widely by industry and
        company, depending on how developed the supply base is and how long
        the companies have been active in China.

    China sourcing--and the skills needed to succeed--will continue to
evolve. Approaches that were best practices just a few years ago are now
standard in most China sourcing offices. As coauthor David Lee notes, "To stay
ahead in this arena, companies need to continuously reinvent themselves."

    About The Boston Consulting Group

    Since its founding in 1963, The Boston Consulting Group has focused on
helping clients achieve competitive advantage. Our firm believes that best
practices or benchmarks are rarely enough to create lasting value and that
positive change requires new insight into economics and markets and the
organizational capabilities to chart and deliver on winning strategies. We
consider every assignment to be a unique set of opportunities and constraints
for which no standard solution will be adequate. BCG has 64 offices in 38
countries and serves companies in all industries and markets. For further
information, please visit our Web site at

For further information:

For further information: To receive a copy of Sourcing from China:
Lessons from the Leaders or to speak with a BCG officer about its findings and
insights, please contact Dorenda McNeil at (416) 300-0269,

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