News of quality scares and rising labor wages in China have many companies rethinking their sourcing strategies in the region. But a fascinating new study from The Boston Consulting Group (BCG) provides clear evidence that the China sourcing opportunity is a great as ever.

Study participants reported achieving an average fully landed cost savings of more than 20% for commodities and products sourced from China. More importantly, the BCG report offers some very clear direction on the organizational, cultural, and supplier management strategies you’ll need to adopt to maximize the China sourcing opportunity for your company.

“Our study reveals that companies are achieving different degrees of success in moving their global procurement spending to China,” writes BCG. “Many companies, even with extensive sourcing experience in the country have not been able to expand their China sourcing beyond 10% of global procurement spending.”

Ironically, BCG reports that the top barrier to achieving China sourcing goals has nothing to do with the Chinese supply base. The real problem may be you. Or, more specifically, your company.

“With just one execption, all the participants in our study pointed to internal resistance at all levels as the number one issue limiting their sourcing from China,” reports BCG. The study points to three types of internal resistance:

1. Lack of understanding of your China sourcing goals and how and when it will impact individual company stakeholders and business units.
2. Lack of incentives for business units and stakeholders to support your China sourcing goals.
3. Perception of risk of moving supply to China and, subsequently, insufficient explanation of how your supply management team plans to effectively assess and mitigate that risk.

Other hurdles to achieving China sourcing objectives noted in the report:

• Varying levels of supply base development across industries and spend categories. “For instance, the Chinese supply base in electronics has been well established for years…As a consequence, some electronics and high-tech companies are able to source up to 50% of their global spending from China.” By contrast, BCG says China’s comparatively immature automotive supply base lacks production processes that meet global standards for efficiency and quality.
• Varying success of implementing sourcing and supplier management best practices.

BCG offers up a Top 10 list of best practices for China sourcing. The report also provides a handy diagnostic supply managers can use to determine in which of the “Four Stages of China Sourcing” their company lies.

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