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EUROPE: "Turbochargers for the East"

EUROPE: "Turbochargers for the East" article in the KPMG "New and Emerging Markets" magazine, starting on page 16.

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back to index backEUROtalk May,  2005


Tricks of the Trade—A physicals trader's approach to sourcing

Based on having spent twenty years of my career moving direct materials around the world on my account, I can honestly say that traders view the world differently from many procurement professionals. While I would not propose to anyone that a trader's approach to purchasing is a desirable way to run a major manufacturer's supply side, there are certainly a number of lessons that a professional purchasing manager could learn from trading to secure his or her aims.

First, true traders tend to look at the world globally; they are never focused on one market either for buying or selling. Theirs is a highly opportunistic approach to business driven entirely by the need to arbitrage transitory opportunities as they arise (from basic metals to complex fabrications).

Consequently, traders will always have their finger on the pulse of foreign exchange movements and commodity markets. A good trader is incredibly sensitive to how a shift can open or close purchase or sale opportunities in different countries. Likewise, traders know from experience which ports have direct shipping services, which require transshipment, which are prone to congestion delays, strikes, and where container availability is at a premium. A good trader knows that shipping rates can vary significantly among ports which are even within relatively close proximity. And they know that this is driven by the global flow of products into buoyant markets where thousands of buyers and suppliers are competing for space. They also know that price variance can manifest seasonally as well (e.g., variability of truck rates into and out of Russia).

Second, a traders' instinct is to sort supply decisions for semi or fully manufactured products by engineering complexity rather than product. For example, a trader may intuitively search for manufacturers of products requiring medium to high degrees of machining but in small production runs from India, regardless of whether they are made from Steel, Aluminum or Plastic because he knows that similar drivers will influence the comparative competitiveness of suppliers handling those different materials. A trader knows how the underlying structure of each country's industrial base can be used to gauge pricing even before sending up an RFI. And traders are also always ready to cream skim” and take savings where they can, whereas a purchasing professional will tend to take a more disciplined approach, only looking to re-source larger volumes and complete categories, often missing valuable savings.

Third, traders are an impatient breed and are often driven by short-term time scales and a realization that they need to maintain momentum if they are to seal a deal before a competitor appears (which often leads them to create fictitious deadlines to speed along a deal). As a result, their offers will be time limited with short validities. And they'll often tell stories of competing demands on the material or the supply source. This may sound like a game, but the result can create rapid closure on a situation that could otherwise possibly unravel over time, or take months (or years) to come to fruition.

Last, like the merchants of old, traders are sometimes branded with having a cavalier approach. But while there are certainly some who would qualify for this badge, their willingness to often look outside of the box is also an asset. From personal experience, I can say that traders have very little regard for multinational corporate sales hierarchies or global sales networks. If a trader is not getting the price he needs from the sales channel of a multinational in his own country, then he'll often look to a sales channel in another country.

A good trader also keeps his cool under pressure and knows that the majority of sales networks within suppliers are loose and uncoordinated (and that a supplier will rarely discover that he has been had by an internal market a trader has created within his organization). I once purchased chemicals from the 6th floor of Shell Petroleum's headquarters in London and sold it back to the 9th floor. But let's keep that between us!


Download Free White Paper by Aptium Global "Sourcing from China: Everybody's Doing It, So Why Should We?", please click here.


Source: Gunpowder newsletter - Aptium Global
- GAI

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EUROtalk

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