The growth in trade of global manufactured products is three to four times the overall rate of growth in the GDP of advanced economies, according to figures from the World Trade Organisation’s International Trade Statistics Report 2005. This explosion in long distance sourcing and supply is exposing the limitations of the transactional capabilities of many companies and their providers and, consequently, putting trading performance and shareholder value at risk.

Procurement and sourcing is a core strategy for profitability. Our financial modelling shows that a gain of 2 per cent in gross profit through low-cost supply can increase profits by 25-35 per cent. However, the implementation of low-cost sourcing strategies is being used as more than just a profit driver. The well-documented growth of Anglo-French group Kingfisher through its DIY chains, Castorama and B&Q, demonstrates that demand can be stimulated by better consumer value. An analyst’s report posted on the group’s website illustrates the contrast: a B&Q knife was originally sourced for 88p and is now sourced for 40p, while a Castorama wrench was originally sourced for €8.50 and is now sourced for €2. The resulting growth in volume and profitability has been a key driver of shareholder value for many retailers and manufacturers. Few can afford to ignore this aspect of strategy and the need to develop excellence in it.