Strategic Sourcing Process from China – Upgrade Your Procurement

China B2B Connections, China Business Development / October 26, 2023 / 10 minutes of reading
strategic sourcing process from China

Strategic sourcing processes from China and around the world has the potential for your international business to save time, money, and resources by automating and streamlining operations.

Leverage artificial intelligence, automation, and other innovative solutions to streamline your procurement and lift a manifold of opportunities for your global company.

The China specialists at China Gravy reveal how technology in general and digitized processes in SAP specifically can ease the procurement process. Understand the role of technology in China sourcing as well as how to leverage AI, automation, and other innovative solutions to streamline processes.

What is a Strategic Sourcing Process?

For companies that procure products and services from around the world – from small startups with a handful of vendors to multinational corporations with global reach – sourcing is an integral part of an enterprise’s success. It is part of the supply chain management process.

 

    • procurement (reactive, short-term): daily business and tactical steps, e.g. issuing purchase orders

    • strategic sourcing (proactive, long-term): supplier and supply chain development, negotiation, outsourcing, monitoring and evaluation

As such, strategic sourcing is a holistic process that combines data, analysis, market research, and contract information as the basis to make informed purchase decisions. The goal is to increase efficiency, i.e. save time and reduce the total costs. It spans from the briefing of the need to the finalization of the purchase order.

In practice, strategic sourcing includes

 

    • data collection

    • digitization of documents

    • workflow automation

So, how can strategic sourcing be broken down?

7 Steps of Strategic Sourcing

The following are the different phases of strategic sourcing:

 

    1. needs assessment: proactive identification of a company’s sourcing needs and goals, identification of budget and responsibilities

    1. data collection and spend analysis: supplier data and historical purchase information collection in a strategic sourcing software, for example, SAP, to create a supplier portfolio

    1. market intelligence: global market research and assessment of existing suppliers, conditions, and developments

    1. RFx process: a digitized go-to-market strategy or RFx (request for X) allows businesses to request quotations, information, etc. easily and quickly through their virtual network, having suppliers compete against each other

    1. negotiation: easily compare and evaluate offers and bids for data-based evaluation

    1. contracting: speed up and streamline workflows and vendor cooperation with digital signatures, renewal alerts, and more

    1. implementation and continuous improvement: track performance metrics, monitor and evaluate strategic sourcing processes for continued optimization to get the best sourcing agreements

As you can see, data is key. This includes an exhaustive list of supplier information with terms, prices, reviews, and more.

Benefits of Strategic Sourcing Processes

The key benefits of implementing a strategic sourcing process for international businesses are

 

    1. drive efficiency to save time and money

    1. minimize supply risks through diversification, reduce human error and fraud

    1. improve supplier selection and relationship

    1. maximize transparency, particularly pricing

    1. ensure compliance with laws and regulations

    1. consider further criteria like social and environmental responsibility of suppliers to fulfill the needs of companies and their customers, e.g. FairTrade seals

    1. quick evaluation, tracking, and reporting

    1. data-driven forecasting

    1. efficiently manage and analyze large volumes of data

    1. free up resources for other strategic tasks

On the other hand, the downsides are minimal. The initial setup may require some time and effort to gather documents, information, and data, involve stakeholders, and discuss ideal processes. However, once this is done, streamlining can take place and efficiency can grow.

Strategic Sourcing Process Tools & Software

Strategic sourcing processes help businesses to increase profitability. Strategic sourcing software and enterprise resource planning (ERP) tools provide customizable solutions at state-of-the-art technology.

Let’s take a look at the largest procurement software on the market. Learn more about simplified vs. traditional Chinese.

Software Type Cost (Q2/2023) Simplified Chinese Traditional Chinese English
SAP (especially Materials Management) Cloud-based, on premise contact SAP for quotation x x x
SAP Ariba Cloud-based From 50 USD per user per month x x x
Oracle Sourcing in SCM (Supply Chain Management) Cloud-based From 650 USD per user per month x x x
Microsoft Procurement & Sourcing in Dynamics 365 Business Central Cloud-based, on premise From 65 USD per user per month x x x

Next, let’s take a look at how strategic sourcing ties into the procurement process from China.

Strategic Sourcing Process from China

At present, the top exporting countries worldwide are China, the US, and Germany. With an export volume of almost 3.4 trillion USD in 2021, China (including Macau and Taiwan) had twice the export volume of the United States, the second-largest exporter worldwide. 

With the “Made in China 2025” export strategy, the Middle Kingdom’s export boom is expected to continue sharply. The new strategy focuses on producing and exporting higher-value products and services.

Therefore, sourcing from China is gaining momentum and relevance for solo entrepreneurs, Amazon sellers, startup managers, SMEs, and large corporations around the world. Among China’s most exported goods in 2022 were

 

    1. electrical machinery and equipment: 955 billion USD (27% of total exports)

    1. machinery including computers: 552 billion USD (15% of total exports)

    1. vehicles: 150 billion USD (4% of total exports)

Mainland China’s biggest equipment export products by value in 2022 were phone devices (including smartphones, computers, electronic integrated circuits, solar power diodes and semiconductors) and electric storage devices. Those major exports account for almost 20% of China’s overall exports sales.

Furthermore, China is the largest production market for solar cells and equipment like solar power diodes as well as lithium ion batteries (global market share 79%) that are required i.a. for booming electric vehicles.

So, what does a strategic sourcing process look like in the Middle Kingdom?

Sourcing Goods from China

When procuring items from the Middle Kingdom, detailed country-specific knowledge is required to ensure a smooth and successful import process from China. Keep in mind that product compliance is a vital component for goods that are imported into regulated markets like the EU and the US. 

If all of this sounds overwhelming, or you simply would like to save time and money, consider collaborating with a China sourcing agent or freight forwarder in China. As always, the China experts at China Gravy can assist you with everything around this.

Specialties of AI & China Sourcing

China is an experienced production and export market. Standardized products are relatively easy to source, while customization is also getting easier and easier. After the global Covid-pandemic, supply chain disruptions were long-lasting. But overall, business has normalized by the end of 2022.

When procuring goods and services from China resp. working with Chinese suppliers, keep in mind these aspects related to AI and automation:

 

    1. consider Chinese business culture

    1. Chinese vendors, factory managers, and suppliers may only speak Chinese, and limited English

    1. find suppliers and innovative partners on

       

        1. English language: Alibaba, Global Sources, Made in China, China Gravy (service)

        1. Chinese language: 1688, Baidu B2B, Pinduoduo (group buying) 

    1. connect and communicate with Chinese suppliers on WeChat rather than email or other channels

    1. limited availability of certain Western websites and services like Google or Facebook

    1. integrate Chinese payment interfaces (AliPay, WeChat Pay, Union Pay)

    1. if you implement voice recognition, make sure to add Mandarin Chinese, and potentially Cantonese (as many manufacturing companies are in Guangdong)

    1. remember to place orders ahead of time before significant traditional Chinese holidays

    1. consider import regulations, necessary certifications, and other requirements; beware of arbitrary short-notice legal changes

Now, if you are wondering how to take advantage of modern tools like AI-driven software to boost your (China) strategic sourcing process, you have come to the right place. Let’s take a look!

eSourcing – How to Optimize Processes with Technology

More and more suppliers in China and around the world are recognizing the opportunities of Big Data, advanced analytics and artificial intelligence (AI tools like ChatGPT and other chatbots, virtual assistants), and are integrating them in their processes to increase effectiveness and efficiency. 

Let’s take a look at how digitized processes can help with global sourcing.

Software-Driven Opportunities in Procurement

 

    • Artificial Intelligence (AI)

       

        • produce recommendations based on past performances and current metrics

    • Machine Learning (ML)

       

        • predictive models based on a variety of metrics (e.g. patterns, market conditions, time of year, geopolitical factors)

    • Natural Language Processing (NLP)

       

        • screen and analyze supplier terms, proposals, contracts, and more

    • Robotic Process Automation (RPA)

       

        • automate repetitive, simple tasks to improve process efficiency

So, how can technology aid strategic sourcing specifically?

How AI Can Support Procurement

Artificial intelligence can support the strategic sourcing process as follows

 

    1. analyze: spend/manage demand, supply market

    1. develop: a sourcing strategy

    1. create and manage: RFI, RFP, purchase orders

    1. negotiate: contracts with vendors

    1. determine: ideal suppliers for specific needs

    1. assess: suppliers, responses

    1. invite: suppliers for tender, responses

    1. receive and manage purchase requisitions

    1. coordinate deliveries and expedites

    1. receive goods and services

    1. manage contracts

    1. disburse payments

    1. monitor compliance and performance

    1. receive and manage invoices

In terms of specific tasks, AI has the following opportunities:

 

    • improve sourcing decisions through data-driven insights and analytics 

    • identify savings and revenue opportunities

    • streamline and align internal business operations

       

        • contract management, renewals, disputes, supplier performance, etc.

        • automatically review and approve purchase orders

        • create and auto-fill tenders

    • automate manual and routine tasks, which frees up resources

    • speed up payment workflows and detect fraud

    • assistance with proposal evaluation and assessment

       

        • determine whether supplier proposals fulfill the requirements

        • evaluate best suppliers and create recommendations

        • ensure compliance with laws, regulations, guidelines, and policies (internal, external)

    • accounting

       

        • spend classification, vendor matching, etc.

    • capture and apply scarce knowledge from various sources

    • identify and assess new suppliers (supplier discovery)

       

        • based on industry, location, products, services, etc.

    • market analysis

       

        • identifying market trends and opportunities

    • optimize supplier relationships

    • risk assessment across the whole supply chain

    • ensure completeness of purchase process, raising alerts for delays

    • provide assistance in multiple language and across multiple channels (email, social media, website)

    • Bots can aid with identifying raw material suppliers, maintenance, and repairs

AI procurement tools like Procure Ai are able to perform many of the above mentioned tasks, and some SAP consultancy companies have already integrated Procure Ai into SAP.

Next, let’s take a look at the recently hyped AI chatbot ChatGPT, and how it can aid the global procurement process specifically. For this, we have asked ChatGPT directly (Q2/2023).

How ChatGPT Can Aid Procurement

Overall, ChatGPT can help sourcing teams to make data-driven decisions and optimize the strategic sourcing process by providing insights and recommendations based on the analysis of large volumes of data. This includes:

 

    1. Market Intelligence

       

        1. compare market trends, supplier performance, and further market insights

        1. sourcing teams can better identify risks and opportunities

    1. Supplier Selection

       

        1. analyze supplier data (performance metrics, financial stability, compliance history, etc.)

        1. sourcing teams can identify the most suitable suppliers, negotiate better terms and reduce supplier-related issues

    1. Cost Optimization

       

        1. investigate pricing data, market trends, and other factors

        1. sourcing teams can determine cost-saving opportunities and negotiate better

    1. Compliance Management

       

        1. analyze regulatory requirements, supplier compliance history, and further data sources 

        1. sourcing teams can ensure compliance with ethical and legal standards 

    1. Process Optimization

       

        1. scan sourcing process data

        1. sourcing teams can identify bottlenecks, inefficiencies, and further areas for improvement

Keep in mind that ChatGPT does not yet have access to the internet (in early 2023) and only has received input and data up to the year 2021.

Strategic Sourcing Process from China – The Takeaway

Digitized and automated strategic sourcing processes make global buying easier, save time and money, reduce risks, and ease forecasting. Besides, it helps you to standardize source-to-contract processes, i.e. finding and selecting the ideal suppliers for your company and negotiating the best deals.

 

    • increase efficiency to save time and total costs

    • significantly reduce supply risks, human errors, and fraud

    • find better suppliers and partners, streamline vendors, enhance business relationships

    • drive transparency and visibility, particularly pricing

    • compliance with laws and regulations

    • address further criteria like CSR, e.g. FairTrade seals

    • fast evaluation, tracking, analysis, and reporting

    • data-informed forecasts

    • efficiently manage and analyze large volumes of data

    • free up resources for other business tasks

All in all, technologies like automation, AI, blockchain, etc. disrupt all sectors including procurement and sourcing.

When working with Chinese suppliers, keep in mind these AI-related aspects

 

    1. consider the Chinese business culture

    1. English may be limited

    1. consider Chinese sourcing platforms like Alibaba, Global Sources, 1688, and Baidu B2B 

    1. cross check reviews and prices on multiple platforms (AI supported)

    1. verify supplier information, e.g. with Baidu Aiqicha

    1. the Great Firewall of China may block some Western websites and applications

    1. use WeChat to communicate professionally, easily, and quickly; integrate through API to automate communication via a Chatbot

    1. integrate Chinese mobile payment services like AliPay and WeChat Pay through API to automate payments via AI

    1. when using voice recognition, add Mandarin Chinese, and Cantonese (if applicable)

    1. place orders ahead of time before significant traditional Chinese holidays

    1. consider import regulations, necessary certifications, and other requirements

Are you ready to lift the potential of digital transformation to gain supply chain success? The China experts at China Gravy are happy to help you get started.

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