Considerations in Evaluating an international procurement office (IPO) site
First in a series
Arvid Pedersen -- Purchasing, 6/3/2004 2:00:00 AM
For many companies considering the creation of an international procurement office (IPO), developing the evaluation criteria is challenging and confusing at best. Understanding the various evaluation factors for international sites in regards to culture, labor costs, office costs, and taxes can be intimidating. While there are always evaluation factors unique to a particular company and its product, there are a few common considerations that must be researched. This article will identify one of the most important factors to be considered—the IPO mission—and will discuss it in considerable detail. Later articles will identify and discuss several other factors in greater depth.
IPO mission
The most important and most often overlooked step in the decision to develop an international procurement office is the mission or purpose of the organization. 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 mission and scope of the IPO organization must be defined early in the process to provide a framework for the IPO organization, and will be the reference document during the evaluation and approval of the IPO. Critical considerations when formulating the mission and scope of the IPO must include:
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Operations support: What is the existing and planned scope of the company operations in the overseas market of interest, and how will the IPO be tasked to support it? Will the IPO provide support for exported finished product, and exported material in support of domestic manufacturing, or will it precede manufacturing operations to be developed in country? If manufacturing operations in-country are to be developed, it is wise to conduct supplier searches and qualification long before facilities are operational. Best-in-class companies place legions of buyers and quality engineers in-country to develop qualified sources before ground-breaking ceremonies on manufacturing facilities.
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Geographical scope: Is the IPO to have regional or only in-country responsibility? This too, will depend upon the extent of existing and planned general operations. As with the company's operations in general, identification of the geographic scope of the IPO will have a significant impact on the staffing requirements and skill mix of the IPO organization.
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Performance metrics: What are the targeted cost reduction, quality performance, and delivery performance goals for the organization? In addition, performance criteria for other metrics such as budget, acquisition overhead, training, and employee turnover should be established up front.
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Commercial benefits: Having a presence in foreign markets can provide tremendous benefits to the company. Engagement in governmental affairs, local trade fairs, and knowledge of local retail or commercial markets can provide valuable business knowledge to the organization.
Concluding considerations
Defining the scope and task of the IPO clearly at project initiation will enhance ultimate performance and minimize costly restructures or retrenchments. As senior leadership may change many times during the life of an IPO, obtaining documented concurrence on the IPO objectives will go a long way towards maintaining a clear measure of success and consistent strategic direction.
The second article on this subject will appear in theJuly 15 issue of PURCHASING.
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