PricewaterhouseCoopers recently conducted a survey of sixty retail and consumer goods companies from around the world. The goal of the survey was to better understand how and why companies source globally. Although most companies cited cost savings as a major driving force behind global sourcing decisions, the survey determined that 21% of these companies don’t know what savings to expect, and 25% never find out what their actual savings are.

As the adage goes, “Success is not a measure of where you are, but a measure of how far you’ve come.” It is impossible to determine the effectiveness of a sourcing initiative without baseline cost figures, tangible goals, and meaningful metrics. For a moment, ignore the multitude of qualitative factors that should be considered when sourcing and focus solely on the bottom line. From this perspective managers must ask themselves three important questions; “What are we spending now, what do we expect to save, and how much of these savings are actually being realized?”

A manager should be able to say something like, “Currently the total cost of ownership for one widget is 25 cents, and we buy 1,000,000 widgets a year. With this sourcing initiative we can expect a 5% drop in the TCO for each widget we procure.” Once the initiative is put into place, the manager’s job is not finished. Although it is a laborious and sometimes tedious process, the tracking of actual savings is a necessity.

If a manager notices that a sourcing project is yielding unsatisfactory savings, he will be able to pinpoint problem areas and look for solutions that will optimize savings. If trends begin to suggest that a reasonable amount of expected savings cannot be realized, managers will have learned a lesson and know to start looking for more promising opportunities.

Survey titled, “Global Sourcing: Shifting Strategies”
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Steve Tatum

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