After international companies launch manufacturing and logistics facilities in the emerging markets they usually meet various supply chain issues – like difficulties with in-time supply because of the Custom Office’s longer procedures or quick growth of the logistics costs (especially in such large countries like China, Brazil or Russia). Thus the optimization of the supply chains in emerging markets becomes an important competitive factor.
ICG has a strong experience in supply chain consulting projects done for international companies as well as for the clients from emerging countries.
Localization is one of the options to improve supply chains in emerging markets – assuming the possibility to purchase required materials, products and services from local sources by lower prices or at least with lower logistics expenses. Of course the quality is always a challenge in any localization project – but with expansion of the western suppliers’ presence in the emerging economies it becomes possible to buy world-class inventories manufactured in the same area with your facility. The development of the component manufacturing sites around any western automotive plant in emerging markets is the most bright example, but other industries begin to benefit too.
Managing the relationship with the international suppliers (those supplying from their overseas facilities and those with local sites) as well as with the local providers is also an important task for any player in emerging markets. It’s where we can provide our consultancy and expertise too.
Case study
Challenge: International food producer launched a facility in Central Asia. Initially 100% of the supply with raw and supplementary materials was done from the company’s facilities in EU and warehouses in Russia. Due to constant growth of the transportation tariffs in the CIS such delivery became more and more expensive; changing import regulation in CIS (like Custom Union launch with Russia, Kazakhstan and Belarus, etc.) also added uncertainties to the business – making in-time supply hard or even impossible.
A team of consultants was hired to resolve the problems – where ICG was a supply chain and supplier management consultant (the team was enforced with a law firm).
Approach: ICG started its part of the job with technology compatibility research (client’s quality requirements for raw and supplementary materials vs. national and CIS standards); as the result it was found that the local products – assuming they are manufactured in full conformity with existing national/CIS standards – fit the client’s corporate standards only in 40% (i.e. localization might reach 40% as much).
The next step was done – price benchmarking (local prices vs. costs at existing supply chain); more than two third of the local products (selected at phase I) demonstrated lower prices towards traditional supply chain.
The next stage was a research for localization possibilities – i.e. identification of the local (Central Asia and neighboring Russian regions) suppliers of the products a) that fit national/CIS standards compatible with the corporate ones; and b) with prices lower than existed supply costs. After a complex screening process done with ICG few local suppliers were selected with a client.
The next phase of the project targeted relationship with such new local suppliers; team members worked out different aspects of such relations – logistics schemes, contract framework, payments and taxes, etc.
Meanwhile ICG concentrated efforts in a) integration of the new supply pipeline into the corporate procurement process (including the changes in such procedures – so they better fit local regulation environment and business traditions); b) work with the selected local suppliers on upgrade of their quality management so it better fits the client’s requirements; c) integration of the CRM systems (policies, procedures, software) at the side of the local suppliers with SRM system at the side of the client; d) integration of the logistics schemes, legal and financial recommendations, etc. into a single corporate policy titled "Relations with local suppliers: framework and principles"; e) development of a document with description of the client’s requirements to new local suppliers and the policy for its relations with such suppliers; then such document was distributed among the potential providers so they knew what they needed to improve to enter the supply chain.
Value: A client could reduce its supply costs in the Central Asian facility due to local supply; the principles for involvement of the new local suppliers were developed – so now more and more local firms are arranging their quality management to become a client’s suppliers.