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Effective Global Sourcing and
Supply for Superior Results

Robert M. Monczka, Ph.D.

Distinguished Research Professor
of Supply Chain Management
W. P. Carey School of Business
Arizona State University
Director–Strategic Sourcing
and Supply Chain Strategy Research
CAPS Research

Robert J. Trent, Ph.D.

Associate Professor of Management
and Supply Chain Program Director
Lehigh University
Department of Management and Marketing

Kenneth J. Petersen, Ph.D.

Associate Professor of Management
Colorado State University
Department of Management

CAPS Research

2006
 Effective Global Sourcing and Supply
for Superior Results

Robert M. Monczka, Ph.D.

Distinguished Research Professor of Supply Chain Management
W. P. Carey School of Business
Arizona State University
Director–Strategic Sourcing and Supply Chain Strategy Research
CAPS Research

Robert J. Trent, Ph.D.

Associate Professor of Management and Supply Chain Program Director
Lehigh University
Department of Management and Marketing

Kenneth J. Petersen, Ph.D.

Associate Professor of Management
Colorado State University
Department of Management

Copyright © 2006 Institute for Supply ManagementTM

and the W. P. Carey School of Business at Arizona State University.
All rights reserved.
 Acknowledgments

The lead researchers for this study would like to publicly acknowledge and thank
the following individuals for their contributions to this effort.

• Kathleen A. Chester of the Institute for Supply Management (ISM) provided

general administrative support for this report.

• Roberta Duffy, Director, Executive Programs and Publications, CAPS Research,

provided critical editorial support for completion of the final report.

• Debbie Maciejewski, Research Manager, CAPS Research, managed the

solicitation process for the Web survey and administered the ongoing
communications with survey respondents.

2 Effective Global Sourcing and Supply for Superior Results

 Author Biographies

Robert M. Monczka, Ph.D., is Research Professor of Supply Chain Management at

Arizona State University. He is also Director of Sourcing and Supply Chain Strategy
Research at CAPS Research, where he focuses on sourcing and supply strategy
development, innovation, and implementation and leadership of Project 10X.
Dr. Monczka has researched, taught and consulted about strategic purchasing/
sourcing and supply chain management strategies and implementation processes.
He has been principal investigator on two major National Science Foundation
projects in the area of procurement and supply chain strategy and practice. He is a
coauthor of a leading purchasing text titled Purchasing and Supply Chain Management.
Dr. Monczka has consulted with more than 100 companies of the Fortune 500.

Robert J. Trent, Ph.D., is an Associate Professor of Management and the Supply

Chain Management Program Director at Lehigh University. He has authored or
coauthored three previous CAPS studies and dozens of articles appearing in
numerous journals, and is the coauthor of a textbook titled Purchasing and Supply
Chain Management, now in its third edition. Prior to his return to academia, Bob
spent seven years with Chrysler Corporation.

Kenneth J. Petersen, Ph.D., is currently an Associate Professor of Management at

Colorado State University. Previously, Dr. Petersen was on the faculty at Arizona
State University and the University of Oregon, where he conducted research and
taught in the graduate, honors undergraduate and undergraduate programs in the
areas of supply chain management, operations management and e-commerce.
Dr. Petersen received a Ph.D. from Michigan State University, where he studied
operations and sourcing management and information systems.

CAPS Research 3
 Table of Contents

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Author Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Index of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Background to the Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Guidance for Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research Objective and Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Global Sourcing and Supply Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Research Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Demographic Profile of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Report Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Chapter 2: Current State of Global Sourcing and Supply . . . . . . . . . . . . . . . . . . . . 12
Global Reach; Supplier and Procurement Center Locations . . . . . . . . . . . . . . . 12
Firm Performance Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Global Spend Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reasons to Source Globally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Results Achieved From Global Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Major Problems Encountered When Sourcing Globally . . . . . . . . . . . . . . . . . . 14
Implementation of Requirements Important to Global Sourcing Effectiveness . 15
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Chapter 3: A Prescriptive Model for Global Sourcing and Supply . . . . . . . . . . . . . 17
Five-Level Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Global Sourcing and Supply Process Models . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Chapter 4: Critical Success Factors Impacting Global Sourcing
and Supply Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Global Sourcing Performance Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Global Sourcing and Supply Critical Success Factors . . . . . . . . . . . . . . . . . . . . 23
Individual Features That Relate to Global Sourcing Excellence. . . . . . . . . . . . . 26
Using Scenario Comparisons to Identify Global Sourcing Drivers . . . . . . . . . . 26
Summary of Key Performance Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Chapter 5: Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Decision Making and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Organizing for Integrated Global Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Global Strategy Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Using Teams to Support Global Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Case Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

4 Effective Global Sourcing and Supply for Superior Results

Chapter 6: Cross-Enterprise Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Integration Across the Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Formal Improvement Processes and Information Sharing With Suppliers . . . . 52
Integration Through Communication Technology and Information Systems . . 53
Human Resource Requirements for Integrated Global Sourcing . . . . . . . . . . . . 55
Overall Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Chapter 7: International Purchasing Offices and Sourcing in Emerging Markets . . 59
International Purchasing Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Emerging Market/Lower-Cost Country Sourcing . . . . . . . . . . . . . . . . . . . . . . . 61
China Sourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Chapter 8: Global Sourcing and Supply Trends and Strategic Directions . . . . . . . . 70
Competitive Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Survey Respondent Suggestions for Improvement . . . . . . . . . . . . . . . . . . . . . . 70
Global Sourcing and Supply Strategy Trends . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Assessment Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Concluding Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Appendix A: E-Survey Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Appendix B: Global Sourcing and Supply E-Survey Questionnaire . . . . . . . . . . . . 77

CAPS Research 5
 Index of Figures

Figure 1: Global Spend Is Increasing . . . . . . . 13 Figure 14: Relating Specific Features to

Global Sourcing Performance
Figure 2: Global Annual Spend by Outcomes . . . . . . . . . . . . . . . . . . . . 28
Purchase Family . . . . . . . . . . . . . . . 14
Figure 15: Global Sourcing Leadership
Figure 3: Reasons for Sourcing Globally . . . . 14 Council Responsibilities . . . . . . . . . 34

Figure 4: Results of Global Sourcing and Figure 16: Separating Centralized and
Supply . . . . . . . . . . . . . . . . . . . . . . 15 Decentralized Supply Activities . . . 34

Figure 5: Qualitative Rating Performance Figure 17: Typical Center-Led Sourcing/

Results . . . . . . . . . . . . . . . . . . . . . . 15 Supply Organizational Structure. . . 36

Figure 6: Most Critical Factors Affecting Figure 18: Global Sourcing: One Company
Global Sourcing and Supply Leveraging With Commodity
Performance . . . . . . . . . . . . . . . . . . 16 Leadership . . . . . . . . . . . . . . . . . . . 36

Figure 7: Degree of Critical Factor Figure 19: Typical Regional Structure . . . . . . . 37

Implementation . . . . . . . . . . . . . . . 16
Figure 20: Cross-Locational/Cross-Functional
Figure 8: Current and Expected Worldwide Teaming . . . . . . . . . . . . . . . . . . . . . 39
Sourcing Levels, 2000 . . . . . . . . . . 17
Figure 21: Cross-Locational/Cross-Functional
Figure 9: Current and Expected Worldwide Teaming Requirements for
Sourcing Levels, 2005 . . . . . . . . . . 18 Success . . . . . . . . . . . . . . . . . . . . . . 40

Figure 10: Global Sourcing and Supply Figure 22: Global Sourcing Human Skill
Strategy Development and Requirements . . . . . . . . . . . . . . . . . 55
Implementation . . . . . . . . . . . . . . . 19

Figure 11: Common Global Sourcing

Process . . . . . . . . . . . . . . . . . . . . . . 20

Figure 12: Performance Factors . . . . . . . . . . . . 22

Figure 13: Factors Related to Global Sourcing

Performance Outcomes . . . . . . . . . 27

6 Effective Global Sourcing and Supply for Superior Results


Background to the Research
Global sourcing and supply, combined with
outsourcing, has been at the forefront of company
thinking over the past five years. During the late 1980s
and early 1990s, international purchasing was a key
procurement strategy. The declining competitiveness of
many Western firms, along with the belief that
international purchasing could help reverse this decline,
led many firms to turn to global sourcing. Substantial
international purchasing research has examined the
issues that firms must address and the outcomes that
firms should expect to attain from sourcing offshore as
they compete against aggressive and skilled foreign
companies.
However, little information and in-depth analysis
concerning how firms should structure themselves to
move beyond reactive international purchasing is
available. Specifically, few accounts exist describing how
firms globally coordinate their sourcing and supply
activities or what factors support a globally integrated
view of sourcing and supply. Although many executives
have concluded that a need exists to develop global
sourcing processes and strategies and to view global
sourcing as a key strategic tool, available details
concerning how to achieve these goals are few. The lack
of detail concerning how to develop and implement
global sourcing and supply strategies is a primary driver
behind this research. The need to replace anecdotal
insights into global sourcing with research-based
insights is also critical.
This research addresses the above issues by analyzing
information from field research with 16 companies and
the results of an e-survey of 167 sourcing and supply
executives representing more than 25 industries.
Executive Summary
Key Findings
The research showed that the magnitude of global
sourcing is increasing. In 2000, firms in this study
sourced between 21 percent and 30 percent of their
total annual spend on a worldwide basis. In 2005, total
nondomestic spend increased to between 31 percent
and 40 percent. It is projected that in 2010 the total
dollar amount of purchased items obtained from
nondomestic sources will be between 41 percent and
50 percent.
The primary reasons for sourcing globally are cost
related. On average, respondents achieved cost
reductions of 19 percent and a total cost-of-ownership
reduction of 12 percent.
The research revealed that the primary problems
encountered when sourcing globally include the
following:
• Lengthened material/components/service lead
times
• Supplier delivery and quality
• Locating and evaluating qualified suppliers
• Lack of qualified business unit personnel to
support the worldwide sourcing process
However, these and other potential issues were at most
considered a moderate problem. None of the issues
were considered major. Overall, it appears that the
issues can be overcome with focus and resources.
The research determined that for the most critical
factors affecting global sourcing and supply,
implementation at responding firms was at best only
partial. These factors are as follows:
CAPS Research 7
 1. Information availability
2. Personnel with required worldwide knowledge
and skills
3. Knowledge of suppliers available worldwide
4. Time to develop worldwide strategies
5. Use of cross-functional teams
6. Effective logistics planning and execution
7. Availability of suppliers with worldwide
capabilities

The research determined that eight factors positively

and statistically related to global sourcing performance
outcomes. These eight factors were the following:

1. A defined global sourcing process

2. Centrally coordinated/centrally led decision
making
3. Site-based control of operational activities
4. Information sharing with suppliers
5. Real-time communication tools
6. Availability of critical resources
7. Global sourcing and contracting systems
8. International purchasing office support

Global sourcing and supply effectiveness will reflect

how well these factors, in the aggregate, are
implemented with continuous improvement.

Finally, the research revealed that organizations are and

will be further integrating and coordinating global
sourcing strategies across functions and locations to
achieve superior performance.

Guidance for Senior Management

Based on the findings from this and prior research, the

research team recommends a focused investment in
global sourcing and supply. The investment should cut
across all factors identified as critical to performance,
because they appear to be highly interrelated.
Improvement in only one or two areas may limit
continuous performance improvement. Any investment
should provide a significant payback, not only in cost
reductions but also in achieving best supplier
performance and preferential treatment from suppliers
worldwide. In addition, sourcing could enhance
customer market penetration.

The report discusses in detail the strategies and

practices that companies have implemented and
identifies those strategies and practices that are strongly
related to performance, to provide a basis for selecting
improvement priorities.
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8 Effective Global Sourcing and Supply for Superior Results