Until recently, procurement was a necessary, but seldom celebrated, component of multinational corporations. But times have changed: These days, procurement organizations within companies are playing pivotal roles in the success of global firms in ways that old-fashioned purchasing managers could never have imagined.

In this podcast special report, Wharton faculty and procurement experts at The Boston Consulting Group discuss why the procurement function has risen to such prominence in a highly competitive global environment, and how, as supplies of critical commodities tighten and prices rise, companies can strategize to mitigate these and other risks.

Part 1: The Strategic Perspective
Procurement has taken on greater strategic importance in multinational companies in recent years -- and it will assume even greater significance in the years to come, according to Hal Sirkin, senior partner and managing director at The Boston Consulting Group and global leader of BCG's operations practice. In an interview with Knowledge@Wharton, Sirkin discusses procurement in the context of global business, and the ways in which companies from rapidly developing economies are challenging traditional multinationals.

Knowledge@Wharton: Companies have been sourcing from China and other low-cost locations for years now. What level of expertise and cost savings are you seeing?

Sirkin: We’ve seen cost savings in the range of 20% to 40%, depending on what the product is. On the other hand, we’ve also seen examples where there were no cost savings when companies tried it. There are a lot of advantages to going to low-cost countries to source, but it has to be done right. I think the biggest mistake that companies make is that they try to source things and forget it — and you can’t forget it.

Part 2: Challenges Facing Procurement Organizations
Procurement has become an integral part of corporate performance and is drawing increased attention from senior management. In this interview, Andreas Gocke, a BCG partner and managing director, spoke with Knowledge@Wharton about the most critical challenges facing procurement organizations over the next five to 10 years, including training and employee development, managing global sourcing offices and ensuring collaboration across corporate departments.

Part 3: Global Supply Chain Strategy
Marshall L. Fisher, director of Wharton's Fishman-Davidson Center for Service and Operations Management, has been researching issues related to retail supply chain strategy for many years. In this interview, Fisher highlights some of the challenges facing global procurement, and he discusses the example of Luen Thai, a Chinese company that built a giant "supply-chain city," becoming a one-stop shop for clothing manufacturers looking to outsource to low-cost producers.

Part 4: Building Customer-Supplier Relationships
In the never-ending quest for cost savings, many companies have reduced the number of suppliers they use, consolidated their purchases, and negotiated better prices. So, where can chief procurement officers and other managers now turn for savings? In this interview, Bob Tevelson, a BCG partner and managing director, says firms must segment suppliers to identify those that can deliver what he calls "partnership value" by establishing relationships that move beyond the transactional level.

Part 5: China Sourcing
Multinational corporations have been sourcing from China for years, but that doesn't mean that all the questions have been answered about how to engage in procurement activities in the world's fastest-growing economy. In this interview, David Lee, a partner and managing director at BCG, says that plenty of challenges remain. Among them: finding good suppliers that offer products at relatively low costs, and being willing and able to outsource a sufficient volume of one's business to Chinese suppliers.

Knowledge@Wharton: We’d like to talk to you a little today about China sourcing. As you well know, that’s a very important and particular issue of interest to companies around the world. Can you begin by giving us an idea of how China sourcing differs from sourcing in other parts of the world?

Lee: I think China sourcing, to a certain extent, is very similar to a lot of the low-cost country sourcing or overseas sourcing. There are some things that are particularly different because China is still going through a lot of transitioning right now. So, there are a lot of issues that need to be addressed. For example, Chinese suppliers do not always have the same capabilities and the quality level can be highly uneven. ...

Part 6: Subcontracting and Product Quality in China
Marshall W. Meyer, professor of management at Wharton, has made many trips to China to research the rapid growth of its economy and the successes and difficulties it has had in growing so quickly. In this interview, Meyer discusses the recent controversy surrounding China's exports of substandard toys and pharmaceuticals to the United States, and the implications for supply-chain management.

Part 7: Managing Commodity Risk
Managing commodity risk has emerged as a key issue in today's economy. Consider airlines, which have seen fuel costs rise seven-fold over the last few years, says Bob Tevelson, a partner and managing director at BCG. In this interview, Tevelson says commodity risks are associated with both price volatility and supply availability. More and more companies may wish to turn to hedging strategies to manage commodity risk, he notes, but such strategies can pose risks themselves unless they are properly implemented.

Part 8: Performance-based Logistics
These days, when the U.S. Department of Defense buys a fighter jet from Lockheed Martin, it doesn't simply pay Lockheed for the physical product. Instead, the government has a "performance-based contract" with the defense supplier, according to Serguei Netessine, professor of operations and information management at Wharton. This contract says, in effect, that the government's reimbursement to Lockheed hinges on the jets' performance -- that is, how often the planes are able to fly. In this interview, Netessine describes how performance-based contracts are becoming more common in a variety of industries.

Visit The Importance of Procurement in a Global Environment Website

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The Wharton School is the business school of University of Pennsylvania in Philadelphia, Pennsylvania. It was established in 1881 through a donation of Joseph Wharton and is the world’s first collegiate business school. It is widely regarded as one of the world's most highly esteemed and influential business schools.

In conjunction with the other schools and colleges of the university, Wharton grants B.S., MBA, offers a Ph.D. program, and holds several diploma programs. With the most electives of any business school, Wharton offers concentrations in Accounting, Business and Public Policy, Entrepreneurial Management, Environmental Management, Finance, Health Care Systems, Human Resource and Organizational Management, Insurance and Risk Management, Legal Studies and Business Ethics, Management, Marketing, Multinational Management, Operations and Information Management, Real Estate, Retailing, Statistics and Strategic Management.

Since the 1990s, the popular and financial press has consistently ranked Wharton as one of the world's top institutions for business education. Moreover, it has been ranked the best business school in the world by the Financial Times in every year in which the newspaper has ranked business schools, except for 2005, when it tied with Harvard Business School. Wharton usually receives the highest reputation scores from academics and recruiters.

The school has over 300 faculty members, translating to an 8:1 student-to-faculty ratio. The school's faculty are the world’s most published and most cited among business schools. Research published in the peer-reviewed Academy of Management Journal ranked Wharton as top institution in the simultaneous pursuit of scholarly achievements and excellence in teaching. Most recently, the Chronicle of Higher Education rated Wharton's Marketing and Management departments as the first and second in the world for research productivity, respectively.

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