According to Ariba, approximately 48% of the word's largest corporations have established international procurement offices (IPO). This figure is typically higher in industries with history of cost pressure, such as automobile, consumer goods and electronics. In the early days, many IPOs were set up to handle tactical things like purchasing order transactions. As supply base in low cost regions matures, more and more IPOs are commissioned with strategic tasks such as supplier identification, selection, audit and performance management. This requires a high level of expertise for the IPO staff. The people you hire for your IPO will make it or break it.
So what issues should companies be aware when fist time staffing their IPOs?
Hire a change agent as IPO Head. A senior executive once said, his IPO delivered nothing but tons of presentations. From presentation to product, it requires a change agent to make it happen. Many companies set up IPOs in order to shift its supply base to low cost regions. This by any criteria is a huge change. How do you convince Engineering to qualify new suppliers which they have never heard about? How would you assure Manufacturing that their production lines won't be negatively impacted with a supply chain now 5,000 miles longer? How do you get sufficient resource from Finance and Tax to set up the correct transactions across borders? This will require the IPO head to be a change agent when you set up the organization.
Keep in mind this change agent is most time located remotely in a different country and a different time zone. This makes change management at headquarters even more challenging. He or she must be passionate about his or her mission and able to initiate positive changes throughout the organization. Very often, IPO heads get frustrated after months of presentations: They've got very favorable pricing, low cost region suppliers are very capable in all aspects, but at the end of the day, there is no business. How do they overcome the roadblocks and maintain the morale of their team as well as suppliers? This indeed requires leadership attributes that people typically don't associate with IPO positions.
Build a balanced team to support IPO mission. In the early days, IPOs were mostly tasked with tactical transactions such as PO management. As supply base shifts to low cost regions, IPOs are taking over more strategic responsibilities which used to reside in headquarters. For example, IBM basically moved its procurement headquarters to China and its CPO John Paterson stays there all year long. Dell virtually did the same with a huge IPO in Singapore - ask their CPO Kevin Brown how much time he stays in Singapore office every year. The era for an IPO with all buyers and commercial people is far gone. You need a balanced team for your extended supply management arm.
Here is the typical expertise that needs to be present at such an IPO: category, purchasing, engineering, logistics and materials management. You don't have to have 5 people to cover these 5 areas if business volume is not substantial; however, a one man show is deemed to be not enough. Insufficiently resourced IPOs will operate like an isolated small island in the Pacific Ocean, and are deemed to fail in accomplishing their strategic missions.
Offer competitive pay to local team. The No. 1 driver for establishing IPOs has been cost reductions. However, don't expect to save much on labor cost from your IPO staff. Companies frequently find out they even have to pay more to hire a commodity manager or supplier engineer in low cost regions than they would have to in their home country. Why? It is simply dictated by limited supply of such talent: There are not sufficient "trilingual" professionals out there. A "trilingual" speaks fluent English, a local language and the language of a profession. These are rare commodities in low cost countries. Unless you are big names like IBM who can attract talent through brand recognition, be prepared to offer very competitive pay.
Take China as an example. A senior VP of a premier institution in the U.S. once said, the days for hiring a sales manager in China with $18,000 a year are far gone. Same applies to supply management professionals. Salaries have been growing at close to double digit year over year in China. High turnover of local team has been a challenge for essentially any MNCs in China. With the economy booming and many China based companies trying to establish their footprint globaly, the competition for bilingual talents is fierce. MNCs are no longer competing among themselves but with domestic major companies as well for experienced bilinguals. They will have to offer not only competitive pay but also a career path for their IPO staff, or else they will find themselves training camp for their peer companies.
Having said all the above, how would you make sure you are doing the right things when staffing your first IPO? Companies often find executive search firms with local expertise of great help if their internal HR doesn't possess such expertise. They can start with filling the IPO head position, and then build a team around this position. Experienced IPO heads typically understand the needs of their staff very well, and companies will rely less on executive search partners when their IPO heads are in place.
About the Author
Bob Liu, C.P.M., CPIM, is Managing Director of CSCS International. He is stationed in Silicon Valley and travels frequently to Greater China to help clients build their local supply chain organizations. Bob got his MBA in supply chain management, and has been managing global supply chains for over 10 years in the U.S. and China. He can be reached at bob.liu#ChinaSCservices.com (substitute # with @).
