The dramatic increase in sourcing of goods and services from low-cost supply markets such as China and India has not been matched by growing knowledge and understanding of these markets, reports consulting firm A.T. Kearney (www.atkearney.com).
A.T. Kearney's study of procurement practices finds that as companies chase offshore sourcing savings, they are not effectively evaluating the risks nor cultivating the necessary skills associated with overseas sourcing efforts.
The number of companies sourcing from China, Eastern Europe and India has increased significantly in the last five years and will continue to rise in the future. By 2009, 72% of companies plan to source from China, a rise from less than 30% in 1999. Fifty-nine percent of companies plan to source from Eastern Europe by 2009, an increase from one-in-three five years ago. Half of the companies surveyed plan to source from India in 2009, nearly tripling the number sourcing from there in 1999.
Yet companies surveyed reveal they are not prepared to manage this increased sourcing from low-cost countries effectively. Only 53% have category strategies that indicate a clear understanding of the supply chain and logistics costs associated with emerging market alternatives. And just 39% have formal plans in place to increase their supplier base from global sources.
The study finds that North American companies expect to decrease their sourcing from the U.S., Canada, Mexico and Japan in the next five years, while sourcing from Western Europe will remain constant. North American companies plan to significantly increase their sourcing activity from China, India and Eastern Europe.