PurchTips edition #91

Each new year brings anticipation of changes and developments in every field of business. The purchasing and supply chain fields are no exceptions in 2006.

Changes and developments bring uncertainty. There are three questions that represent the most significant uncertainties in purchasing and supply chain in 2006.

• Will the “China bubble” burst in 2006? While some organizations have been contracting work to Chinese manufacturers for decades, the last few years have seen a record number of businesses seeking suppliers in China. The fervor around sourcing in China reminds me of the “dot com boom” of the late-1990’s, with everyone jumping on the same bandwagon. Will the early adopters consume all of the best Chinese suppliers’ capacity, leaving only the worst and least skilled suppliers available for the laggards? Will innovative companies find a way to make domestic sourcing a competitive advantage, mainly through minimized cycle times? Can the growth rate of sourcing to China really be sustained?
• Will JIT programs return with more ferocity than ever? In the US, the Federal Reserve has been raising a key interest rate steadily for quite some time. This approach is expected to continue into 2006 before leveling off at the highest point in years. Most purchasers don’t study this trend much, but accountants, controllers, and CFO’s do. They understand that, in times of interest rate increases, holding inventory becomes more expensive. So, the “bean counters” will be looking for ways to avoid tying up money in assets. Don’t be surprised if you’re pressured to slash inventory in 2006.
• Will procurement offshoring become prominent? The outsourcing of procurement was a hot topic in 2005 as US-based organizations like Ariba and Corporate United took on various procurement responsibilities for their clients. Today, word has it that procurement services providers in low-cost countries are significantly investing in their growth. 2006 could see a move from studying procurement outsourcing to pursuing procurement offshoring.

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