24 June 2008 — The practice of global sourcing in the retail and consumer sector is thriving, but many companies are not particularly clear on their cost savings or confident of product safety and other key risks, according to a survey launched today by PricewaterhouseCoopers.

Cost is the primary driver of global sourcing decisions, yet 21% of respondents do not know what savings to expect. Worryingly the survey of nearly 60 retail and consumer goods’ companies found that one-quarter of respondents did not know what their actual savings were. Companies from Australia, Canada, China, France, Germany, India, the UK and the US took part in the survey, 44% of whom source more than US$500 million of product globally each year and 27% source more than $US 1 billion globally. Despite recent and ongoing robust growth in global sourcing, companies are clearly still challenged with some basic elements.

Among survey respondents the more common costs measured were the ones that are easier to track — transportation and logistics, customs and warehousing. The harder ones to quantify, and the ones less likely to be measured, are compliance costs, quality costs and out-of-stocks. Surprisingly only about half of the respondents measured the cost of out-of-stocks from global sourcing, even though for retailers and suppliers out-of-stocks on the shelf can generate significant costs in the form of lost store sales and lost margin.

For some respondents, overseas sourcing has become so widely embraced that the cost savings generated no longer necessarily provide a competitive advantage. As executives watch competitors reduce costs through overseas sourcing they have no choice but to follow suit because “everyone else is doing it too.”

Carrie Yu, global retail and consumer leader, PricewaterhouseCoopers, commented:

“Globalisation has laid the groundwork for profound change in the way that companies source and manufacture products, particularly in the retail and consumer sector where companies are striving for greater efficiency in a crowded and competitive market place.

“Given margin pressures imposed by the softening of the US and European economies, high fuel and commodity prices and the reputation risks presented by product recalls and environmental considerations, it is more vital than ever to accurately measure the cost and effectively manage the risks of global sourcing.

“The results show that while some companies have a robust process for reviewing and monitoring the benefits and savings arising from their global sourcing efforts, other companies are either not aware of the potential benefits or do not have the systems in place to track them.”

Another key theme emerging from the companies surveyed is that the practice of global sourcing is dynamic and growing. In fact, both historic growth rates and projected growth rates are double-digit figures — almost half of survey respondents have seen a growth rate of more than 10% in the past five years and four in ten project growth rates of more than 10% in the next five years. The survey showed that China is still the number one destination for global sourcing for 83% of respondents. India followed with 58% but Mexico, Brazil, Malaysia, Canada, Chile, Italy and Bangladesh were also cited.

The survey also picked up that product quality is the single greatest risk to global sourcing, cited by 68% of the survey sample. However less than half said they were very confident of managing the risks associated with product safety, despite the potentially damaging repercussions of a product failure or product recall. A quarter of respondents source over 75% of their product globally and with such a high percentage lacking confidence, more active steps are needed to manage product quality risk.

Sustainability concerns have clearly gained ground in the retail and consumer goods sector, illustrated by the fact that 41% of respondents feel climate change is one of the most significant risks to their supply chain. However, almost one-third of respondents were ‘not very confident’ or ‘not confident at all’ about their organisations’ ability to properly manage carbon footprint risks. Only a third of respondents were rewarded on issues relating to corporate responsibility.

Mark Shtilkind, Director, Supply Chain Management Leader, PricewaterhouseCoopers:

“There is no doubt that the processes of globalisation and best practice in business have not bypassed Russia. Global sourcing of vendors is one of the main ways for our companies to reduce costs. But you need to be able to look well ahead and take account of all cost components — from purchase price to customs duties. To satisfy the discerning Russian customer, the quality of the final product calls for a special focus, which may lead to a higher purchase price. At the same time, our companies have a unique opportunity to learn from others’ mistakes. In these terms, the survey findings are very interesting; they identify bottlenecks and trends that need to be addressed. For example, spiralling fuel prices may render unprofitable the global search for supply sources. Also interesting are the survey findings from a huge number of companies that fell short of developing a clear-cut approach to assessing vendor performance, thus failing to see the upsides from using such an approach, even though it’s not a difficult thing to do.

In my opinion, it is essential for a successful market player to define the criteria, regularly reassess the alternatives (domestic vendor vs. foreign vendor) and stay open to using its options where the initial vendor fails to satisfy.”

Notes to Editor

1. For more information please contact Anna Aristova, PR Assistant Manager.
2. On our site you can dowlnoad a copy of the Global Sourcing Survey.
   
   Just over half of the 59 survey respondents were from retail, with the bulk of the rest coming from food and beverage, textiles and clothing and others including fast moving consumer goods and durable goods.