Many of the largest international companies have made supply chain efficiencies central to their overall strategy and established dedicated sourcing operations here.
Companies can choose between many locations based on criteria including:
- low cost
- skill and resource availability
Many international companies have built up their procurement capabilities within the region not only to achieve greater scale and efficiency but also to understand their supply chain and manage the risks in their supplier relationships. Companies are now taking steps to dictate ethical, environmental and quality standards on their own terms rather than relying on standards and regulations set by third parties and industry bodies.
Many companies are experiencing improvements from their suppliers in terms of reliability, quality and consistency. They are expecting suppliers to offer more value in design and product innovation as they move forward.
- The landscape for sourcing companies is changing. The challenges facing consumer market companies include choosing sourcing locations and establishing supplier relationships.
- China and India, the two sourcing giants of Asia, are entirely different environments.
- The focus on social responsibility in the supply chain is extending. There are particular factors driving the growing attention given to ethical and environmental issues in sourcing.
- There are tax and customs issues in sourcing. Companies need to consider the common transfer pricing, VAT and customs issues in their business structure and choice of location.
Suppliers are becoming more professional and capable throughout the region. While costs of sourcing from many countries are rising, the operational risks are falling. With a greater local presence, companies have been able to formalize their processes and relationships, cut lead times and identify new opportunities that deliver improved quality and reliability.
Companies are also striving have a better understanding of their entire supply chain as they seek to comply with higher environmental and ethical standards in their home markets. While operational risks may be falling, reputational and political risks remain significant. Sourcing companies need to understand the financial strengths and weaknesses of their suppliers and to identify risks in their supply chain relationships.
When entering into a sourcing relationship, a company must ensure that the supplier is not fraudulent and that they are adhering to the company’s standards. This requires pre-screening followed by ongoing communication. Supply chain fraud, in the form of undisclosed commission payments and other related arrangements, is prevalent in many parts of Asia and may need to be handled differently in different countries.
Otto Group is a leading internationally active trading and services groups. It sources in 20 countries ranging across Asia to the Indian subcontinent, Madagascar and Mauritius. Otto International Asia delivers 250,000 individual shipments per year to retailers and mail order companies in Europe and North America. It is a comprehensive sourcing train that begins with supervising the point of origin for raw materials, prior to their transformation into fabrics and furniture.
Otto International’s challenge is to align a European value system with the values of different countries in Asia, especially as the search for low-cost production pushes geographic boundaries.
Otto takes its corporate and environmental responsibilities seriously. For example, it looks for cloth suppliers who make sure there are no harmful substances in the dyestuff. Suppliers may be able to make a furniture product 20 percent cheaper but if the suppliers are not approved by the Fair Labor Association or the wood from which the furniture is made is not approved by the Forest Stewardship Council, Otto will not use them.
For the future, Otto expects to delegate more creative input to their suppliers. Creativity will inevitably be increasingly outsourced. As IT allows transport to become more sophisticated, it is expected warehousing will disappear from the West. Goods will be shipped point-to-point eliminating the need for large storage centers and allowing for faster, more efficient shipping.