BCG Study Identifies Ten Practices for Successful Sourcing From China

SHANGHAI, CHINA--(Marketwire - August 1, 2007) - According to a new report by The Boston Consulting Group (BCG), companies are encountering increasingly tough challenges, both internal and external, as their sourcing operations evolve through four stages of maturity -- each more complex than the last. To progress, companies must continuously renew themselves to meet the emerging challenges. The study suggests that the stronger performers are better able to overcome these challenges. Chief among them is internal resistance, which stems from three main factors: poor understanding of Chinese suppliers' capabilities, lack of incentives for sourcing success, and perceptions of risk. Also important is top-down leadership. "Without top management support and drive to remove roadblocks, it is difficult to drive changes internally," explains Jim Hemerling, coauthor of the report.

Released today by BCG's Operations and Global Advantage practices, the report -- "Sourcing from China: Lessons from the Leaders" -- reveals that companies with the greatest success at China sourcing follow ten best practices. These include:

--  Defining a clear sourcing strategy with specific targets and plans.
    The study revealed that 87 percent of companies have sourcing targets, but
    only 33 percent have translated those targets into specific action plans.
    
--  Integrating China suppliers and R&D into design. More advanced
    companies have found that products designed elsewhere limit the benefits of
    China sourcing. The key is to leverage Chinese supplier's capabilities by
    integrating the suppliers and China technology centers into product design.
    
--  Gaining 100 percent transparency into sourcing volumes and savings.
    Leading companies have developed country-specific scorecards and data
    collection systems that provide clear transparency, but many still operate
    in the dark.
    
--  Addressing real and perceived risks. These risks include fluctuations
    in exchange rates, changes in the costs of labor and materials, power
    outages, quality problems, and transportation delays. Addressing these
    risks is one of the most important practices for overcoming internal
    resistance.
    

Other key findings:

--  A growing number of companies are consolidating their local and global
    China sourcing activities to leverage scale and increase their negotiating
    strength with suppliers. In fact, 64 percent of the companies surveyed have
    merged these two functions under one organization.
    
--  Savings vary widely from a reported high of 60 percent of landed costs
    for commodities and products sourced from China, with an average landed-
    cost savings of more than 20 percent.
    
--  The volume of China sourcing also varies widely by industry and
    company, depending on how developed the supply base is and how long the
    companies have been active in China.
    

China sourcing -- and the skills needed to succeed -- will continue to evolve. Approaches that were best practices just a few years ago are now standard in most China sourcing offices. As coauthor David Lee notes, "To stay ahead in this arena, companies need to continuously reinvent themselves."

To receive a copy of "Sourcing from China: Lessons from the Leaders" or to speak with a BCG officer about its findings and insights, please contact Eric Gregoire at + 1 617 854 4570 (gregoire.eric@bcg.com) or Gu Li at +86 21 2306 4069 (gu.li@bcg.com).

About The Boston Consulting Group

Since its founding in 1963, The Boston Consulting Group has focused on helping clients achieve competitive advantage. Our firm believes that best practices or benchmarks are rarely enough to create lasting value and that positive change requires new insight into economics and markets and the organizational capabilities to chart and deliver on winning strategies. We consider every assignment to be a unique set of opportunities and constraints for which no standard solution will be adequate. BCG has 64 offices in 38 countries and serves companies in all industries and markets. For further information, please visit our Web site at www.bcg.com.

Contact Information: Contact: Eric Gregoire + 1 617 854 4570 Gu Li +86 21 2306 4069