Low Cost Country Sourcing: IPO vs BOEG

Low Cost Country Sourcing has evolved from an option to an imperative. LCCS can be done in two ways, First company manufacturing complete product and shipping globally from low cost countries(like apparel, toys etc) or Second organizations sourcing only parts and subassemblies from low cost countries and produce the finished goods at different locations (like automobiles, heavy machinery etc). Although LCCS started with low value goods being manufactured in LCCS but the trend of finding the best cost supplier of parts and subassemblies have now become an integral part of every organizations supply chain.

Organizations have adopted two ways to achieve part / subassemblies sourcing from low cost countries.
1. Setting up their International Purchasing Offices (IPO) at different low cost countries to develop parts and supplier base.
In the last few years, it also has become clear that international procurement offices (IPOs) are an exceptional way to manage and optimize a company's global sourcing effort. The purpose of establishing an IPO for most companies is to maintain a staff of local buyers and quality engineers near the sources of supply. Obvious advantages include local language capability, knowledge of local markets, reduced travel costs, and potential for greater leverage of the corporate purchases for a given commodity. Additional benefits can include local supplier development programs, enhanced quality oversight and frequency of audits, identification of potential suppliers for other commodities, and support for expansion of internal manufacturing capability in the region.

The major roles of an IPO are:

ü Performing supplier selection and maintaining a data base of top suppliers.
ü Doing detail capability study of supplier (quality, capacity and export capability).
ü Doing supplier quality improvement work.
ü Be a part of sourcing cycle and help suppliers win global business.
ü Manage contract compliance and quality issues.
ü Helping with local customs and norms of doing business.

2. Take the help of Business Outsourcing Expert Groups (BOEG). These are third party expert groups which help the organizations identify the kind of suppliers’ organizations can approach and help them achieve their cost savings targets. Prime examples of BOEG are IBM, Accenture, and Ariba.

Both approach’s have their Advantages and Disadvantages:

IPO approach help organizations to understand the country supplier base and to make long term and effective business relations while BOEG approach is used by organizations who wants to quickly achieve their LCCS goals.
Second critical point in deciding whether to have an IPO or BOEG is companies overall spend. If spend is low(less than $10 Million) it is better to approach BOEG while IPO are better for big corporations looking for long term presence and higher savings target.