Companies Ill Prepared to Make Sourcing Shift to China, India, Survey Finds

Management consulting firm A.T. Kearney has released its study “2004 Assessment of Excellence in Procurement,” which tabulates results from procurement and supply chain executives in 275 companies across 25 industries. Overall results show that the trend toward a rising level of sourcing from “low-cost” countries has continued for the last ten years, and respondents to the study indicate that this trend will probably continue for several more years into the future.

North American companies expect to decrease sourcing from the U.S., Canada, Mexico, and Japan, while increasing sourcing in China, India, and Eastern Europe. Chief among the “low-cost” countries used for sourcing is China, which will account for 72% of what the survey respondents say will be their chief supply market by 2009. In 1999, only 30% of Western companies sourced from China. India and Eastern Europe are the other areas that can expect to become major supply markets as well, with 59% of respondents claiming they will source from Eastern Europe by 2009, and half the respondents intend to source from India by then.

Procurement has become a more visible supply chain function, and two-thirds of companies surveyed have at least one senior procurement officer on their executive management team. And yet, the A.T. Kearney report also describes global companies, based in the U.S. and Western Europe, that are so unprepared to work in China and India, in particular, that their attempts to save money by sourcing from low-cost countries are liable to fall well short of the savings mark they hope to achieve. For instance, emerging markets and language capabilities are important to only 41% of respondents.

Another area of potential trouble in shifting sourcing patterns is the fact that electronic procurement software has generally failed to live up to its promise, according to respondents: tools for market analysis, contract management and product lifecycle management need extensive tinkering and fitting together in end-to-end-integration. For more information, visit www.atkearney.com.

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