Global sourcing & Regional procurement hub
Global sourcing, as a big lever to reduce product cost, plays a critical role for a company, especially for multinational corporation’s (MNCs). Herewith regional procurement hub is one key organization set up in this aspect. To support on regular daily sourcing activities and benefit from cost is the key responsibility, like supplier negotiation, quality control, expediting, coordination. Does that mean everything for a regional procurement hub? What’s more regional hub could contribute, and how the future organization to adapt the business demand?
This paper tries to trigger a discussion on how regional procurement hub could better service on global business (not local for local) for a multinational organization.
Role of a regional procurement hub
Let’s first to understand what is a regional procurement hub. Regional procurement hub is also called international procurement office (IPO). The IPO was first defined as “an offshore buying office or buying house set up by an OEM original equipment manufacturer to procure components, parts, sub-assemblies’ materials and other industrial inputs at competitive prices for use by manufacturing plants globally” (Goh and Lau, 1998, p.120). This definition has been updated: “A buying office located abroad, either stand alone or stationed within a foreign subsidiary, that sources industrial inputs and/or services for a company’s global plants; it […] manages the supplier relations and the materials/information flows in a geographically defined area” (Sartor et al., 2014).
Under the definition, the detail role and responsibility of a regional procurement hub could have various levels from different view or at different development stage. Key roles are listed as below based on various investigation performed (Sartor et al., 2015).
1. Cultural broker role, to build the culture connection and overcome culture difference btw headquarter and regions.
2. Negotiator role, participant into activities of defining agreements and drawing up contracts with regional vendors.
3. Coordinator role, involve into inter-organizational project management. e.g. logistic. expediting.
4. Gatekeeper role, to perform quality control for the sourced products and collect related information.
5. Supplier developer role, to develop supplier from technical and quality perspective.
6. Internal advocate role, to promote local competitive suppliers to global supplier chain.
7. Innovator role, early supplier involvement for corporate product development process.
8. Internal advisor role, to provide knowledge on issues concerning regional sourcing for headquarter.
9. Knowledge broker role, contribute local best practice as a centre of excellence of whole SCM.
10. Supply policy maker role, involved for sourcing strategy definition if region is a predominant sourcing area.
From organization development point view, we can category them into 3 stages. First stage (Role 1), regional procurement hub is established only as a cultural broker. For this stage, organization may only have a few colleagues, and focus on bridging the culture gap. All sourcing decision, negotiation, quality control are from headquarter. For this stage, one of key purposes may just support organization to entry this market, only a few sourcing activities happen. We can define this stage as forming phase. In second stage (Role 2-5), as more and more sourcing activities are ongoing, and organization has really benefits from global sourcing, daily sourcing functions will be established in order to meet business demand, like buyer, supplier quality engineer, Inspector, logistic, and etc. For this stage, we could call it normalizing phase. Majority regional procurement hubs are in this stage and will be in that level. For third stage (Role 6-10), in certain regions, a dominant and mature supply chain may have been developed, a further level demand may raise up, like innovation, knowledge broker, etc. and organization should also adopt to the change, like set up procurement engineer, global commodity manager, cost and valve engineer. This stage is really this article try to discuss, and we could define this stage as performing phase.
In below chapters, I try to explain how regional procurement hub could bring bigger value impact to business and get higher attention from E class management from these aspects.
Value as internal advocate/ advisor
As a local player, regional procurement hub is always the best corner to understand regional supplier base and their latest development. So take in regional procurement view at really beginning and bring up their list is really necessary. Of course, it may spend more effort on early discussion due to time zone difference, but it do worth to do that, especially for new product development, as first time right in supplier strategy could have a quicker cost benefit while also reduce overall qualification effort. You can image the difference if we could benefit 20% cost saving at first prototype engine or we will only have this saving after years and only realistic after do lots of design change.
In many cases, regional procurement hub may cautious of advocating or representing regional suppliers if their staffs are mainly composed of local employees for the fear of not being considered whole company interests. I don’t think this should be a concern, neutral discussion with professional behavior should always welcome, as this is beneficial if regional procurement experts could bring their voice in neutral position and increase the internal competition. The most challenge may have not enough professional procurement engineer or project procurement.
Another side, for certain predominant region, for example China, besides you, your competitors are also actively working on this market. So a mature supply chain has been developed there. It is beneficial for the organization to leverage these knowledge and market intelligence. From this point view, to develop local professional talents as internal advisor is a worthful investment. The key tasks are to have supply market intelligence, regional cost development, gatekeeper on new product development, support on big cost out program, new manufacture/inspection technology tracking and roll out, and etc. One good example is like casting and fabrication commodity, if you have clear understanding of cost and supplier development in all region perspective, and catch up the opportunities in China at beginning, you will be the side as winner. What’s the next commodity in which region? The question could only be answered if you are with one in region.
Value as innovator / knowledge broker
Big portion manufacture supply chain portion has moved from developed country (e.g. US) to developing countries (e.g. China, eastern Europe countries) accompany with deeper global sourcing progress. Global value chains specialization results decentralized knowledge distribution. Consequently there is a rising demand that is interaction btw R&D and global suppliers. Why have such need? One observation is that young generation engineers may with limited chance to have these manufacture know-how as this portion majority has in global sourcing channel, what’s more important is that new facility, new technology and innovation more likely will happen in there. Herewith, procurement engineer could anchor in and play a key role as innovator in product develop process with supplier chain expertise. One good example is early supplier involvement (Pls refer to author’s another article: wise design via global supplier involvement) during new product development. Procurement engineer could contribute more innovation together with supplier knowledge.
In another side, as more and more global sourcing activities. It shows the indication that regional hub could be next innovation and knowledge broker center besides headquarter, as the whole supply value chain has already decentralized in various regions. Definitely, there will be lots of best practice pop up based on active daily work and interaction with suppliers. That could cover from product design, manufacture optimization, customer requirements, even business model innovation. These good ideas could be go back to headquarter and roll out in global wise to bring scale business impact. Some clear indications have already been observed. For example, one special manufacture process have been developed and success by Chinese supplier, which dramatically reduced the cost. Another area would be in business mode innovation, China have more business scenario to carry out new mode testing due to its scale and diversity, which could significantly reduce the internal reluctance and external hurdles. One success case in author’s organization is one commodity sourcing mode, a leaner process has been developed which overcomes complex inter-organizational barriers. One reason is regional hub has no so much conflicting internal interesting, another point is that we have good chance to realize this new mod direct in project. Above all, we could category under role as knowledge broker, to distribute regional knowledge to global networking, and in sequence to strength overall organization performance.
How to adapt from organization set up
As discussed in above, a more decentralized procurement organization is expected due to more dynamic business environment and globalization progress. In adapt to this new business environment, regional procurement hub could and will have more responsibilities and roles. How to set up an agile process or organization is still a question. Below some perspectives are given for peers to discussion:
– Build up cooperative but competing regional procurement hub networking is healthy for organization
– Distributed global role and responsibility in region hub in according to regional supplier chain strengthen and business demand.
– Procurement engineer function set up in regional procurement hub as internal advisor, supply china innovation, and knowledge broker.
– A uniform and integrated procurement database and cost transparency in order to support efficiency and fair sourcing decision. Cost value engineering as anchor point is beneficial as a neutral internal advisor.
Bibliography:
Sartor, Marco, Guido Orzes, Guido Nassimbeni, Fu Jia, and Richard Lamming. “International purchasing offices: Literature review and research directions.” Journal of Purchasing and Supply Management 20.1 (2014): 1-17. Print.