Like some of you, I read a lot of procurement trade magazines. Many of these magazines sit un-read next to my bed stand, primarily because they lack a catchy title to get me to stay awake long enough to read. But every once in awhile, I come across a story with a few nuggets of insight that could be helpful to the sourcing practitioner. And just recently I read an article from Efficient Purchasing that I would recommend every sourcing practitioner working inside a global corporation read. The title “Driven by Global Growth” is aptly named. And for construction equipment manufacturer, JCB who buys 200,000 tons of steel and 100,000 tons of castings annually, a few lessons learned and shared should not be missed.
Despite the rising China price, all of the commentary around carbon footprints, green and increased freight charges, etc., JCB has gone from 5 to 25 percent sourcing from what they call “best cost countries”. This company is not using the value of the dollar, China VAT rate changes, or currency fluctuations etc. as an excuse to not be looking for materials on a global basis. Their global pricing knowledge is powerful and they are able to use that as a competitive advantage.
A second interesting nugget involves the globalization and upgrading of the supply base, if you will. JCB’s supply base operates in 25 countries. And instead of following the bandwagon to source locally for local markets, JCB encourages the supply base to produce “with the same quality and developmental potential as everyone else.” In other words, JCB wants their “best cost suppliers” to compete on the global stage, as opposed to only the local stage. The counter-intuitive approach makes for an interesting strategy.
Finally, I love the idea of dedicated engineering teams to re-source parts/materials. Unlike many engineering organizations who are either a) not incented to design for lifecycle cost take-out or b) believe cost reduction activities are ‘beneath’ them or not part of their core mission, JCB invested in people whose sole purpose is to identify, test, design and implement design changes to continuously reduce final product cost. I have rarely, if ever, personally seen a company hire an engineering team for the sole purpose of reducing costs (with the exception of the automotive industry noted). And though it’s the most cost effective to design cost out on the front end, the reality is that it not always practical to do so.