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Sourcing from China fails to meet saving expectations

Businesses sourcing parts from China are failing to achieve expected cost savings.

The original equipment supplier association and management consultancy, PRTM says half of companies studied achieved less than 40% of anticipated savings.

Despite this fact, many auto suppliers still plan to almost triple their procurement budget in China by 2010.

“China sourcing is not a quick fix for short-term cost targets. Dealing with a 7,000-year-old culture thousands of miles away is complex.

Successful suppliers are those with China sourcing efforts based on a solid strategy, determined leadership, sufficient investment in a Chinese purchasing office and local technical support. Successful suppliers typically invest 6-10 years learning to leverage China as an effective, low-cost source of supply,” said PRTM.

The study, based on more than 50 interviews and surveys with executives of global automotive suppliers found:

  • Sourcing in China requires minimum savings of 20% to outweigh the increased costs of logistics, quality and intellectual property risk

  • Savings vary widely, even within similar commodities

  • The highest savings were achieved by suppliers that deployed an integrated strategy as part of their Chinese market expansion and/or global product management programme

  • Leading suppliers have built a local presence and established critical mass of at least $10m (£5.4m) - $20m (£10.8m) in spend

  • Sustainable sourcing in China requires significant investment in local supplier development, technical and quality support

  • Early adopters have achieved the highest savings rates, shorter procurement lead times and lower supply chain risks, but the learning curve is between 6-10 years.

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