Out sourcing, moving to the next stage

PUNE: Out-sourcing of goods and services to low cost countries (LCC) is an increasingly important tool for companies seeking to retain their competitive edge, globally. Yet, a recent survey has found that these same large corporations are not internally prepared to handle this increased out-sourcing.
AT Kearney, the global management consultants, in its recently released report,`Assessment of excellence in procurement 2004: can procurement deliver on its promise?’ has noted that LCCs like China and India could see a sharp rise in out-sourcing.However, this has not been matched by knowledge and understanding of these markets. Which means that they are not effectively evaluating the risks or cultivating the necessary skills associated with overseas sourcing efforts.
“Companies need a sharper understanding of these newer markets,� the report notes, adding, “Waiting too long to craft the best strategy or develop the right skill sets and expertise could mean losing access to scarce, capable resources- and the competitive edge they provide.�
The 2004 AT Kearney report is the fifth in the series since 1992, covering over 275 leading companies whose average revenues were nearly US $10 billion in 03. The companies covered were in 25 industries in the manufacturing, process and service sectors.
The report noted that 72 per cent of companies surveyed would source from China by 2009, from 30 per cent in 1999. India could be the destination for 52 per cent of companies surveyed for this report. In 1999, under 20 per cent global companies sourced from here, rising to just under 40 per cent in 2004.
The report noted that there are additional activities that procurement organisations must attend to. These include employing advanced sourcing approaches, pursuing greater supplier collaboration, deploying e-procurement tools more effectively and developing off shore capabilities. The thrust in all these is greater collaboration with suppliers which will drive advanced sourcing techniques.
The study notes that North American companies expect to decrease their sourcing from the US, Canada, Mexico and Japan in the next five years while sourcing from western Europe will remain constant. North American companies plan to significantly increase their sourcing activity from China, India and eastern Europe.