Deloitte Touche Tohmatsu issued a report based on the survey of 650 executives about how companies address their sourcing activities in emerging countries: Innovation in emmerging markets – Managing product sourcing risks in emerging markets – 2008 Annual Study.
This is a very interesting report, that once more shows that sourcing quality products from places like China is possible if you undertake the right actions and adopt the appropriate approach.
The report says: “just over one-third of the developed-market executives surveyed felt that their companies had been very successful in sourcing from emerging markets, and these companies appeared to be more attuned to the risks involved. In general, successful companies do not minimize or try to avoid these risks, but rather learned to manage them successfully. Their board of directors and senior management are more involved in product safety and quality issues, and their company inspects supplier facilities more often. In short, they appear to be focused on working with emerging market suppliers over the long run and willing to invest in making those relationships work.”
An analysis of the best practices reported in the survey shows that the most successful companies are taking active steps in several areas:
- Rigorous vendor selection, sourcing more from emerging markets that have stricter standards;
- Produce more from company-owned facilities in these locations;
- Visit suppliers’ facilities more frequently;
- Willingly address managerial skills and working conditions during visits;
- Expect that testing levels will increase significantly;
- Detail contract requirements to call for more facility visits and for the approval of subcontractors;
- Understanding that these steps will make manufacturers are likely to incur higher operating costs.
But manufacturer have seen these development to build competitive advantages.The report also says “when choosing emerging market suppliers, successful manufacturers are going beyond the basics of quality, cost and reliability to place much more emphasis on the overall reputation of the supplier.” They will also consider other capabilities (s.a. product development capabilities) and an assessment of softer aspects of the supplier such as the worker conditions and labor practices.
There are many other interesting findings in this report and we will share them in the coming few days.