Last month we launched a discussion of international procurement organizations (IPOs)—shared services entities staffed with specialized teams that perform dedicated order- and logistics-management functions. We also noted that IPOs are a first-rate way for companies to incorporate new supply sources into their established global supply chains.

In-depth research supports the above statement. One quarter of respondents to a recent survey by Accenture are saving 30 percent or more, compared to purchases made prior to launching their IPOs. And four out of five believe their current IPO performance is meeting or exceeding expectations.

But it's not just the existence of IPOs that makes these companies successful. It's what they do with the opportunity. Here are five behaviors associated with high performance in global sourcing and the use of international procurement organizations:

1. Focus on people. Most respondents to the aforementioned survey expect the annual headcount of their IPOs to increase by up to 20 percent. Requirements of this magnitude will be difficult to meet because it's unlikely that so many capable personnel can be marshaled and trained in a short time.

Thus it is critical to minimize turnover. Key strategies for accomplishing this are: (in order of the priority assigned by survey respondents) training/education opportunities, attractive compensation packages, and the provision of international work opportunities. Other recommended behaviors include transparent career paths, a good IPO location, and appropriate job titles. Clearly, this is an area where IPOs should insist on a portfolio of retention approaches.

2. Leverage third parties. Even with solid retention strategies, companies will have to involve more third parties. Yet this could be the best way to access “on the ground capabilities” while reducing recruiting and training pressures. Interestingly, the third party capability most sought after by survey respondents is market research. This is often perceived as a preamble to execution.

The reality, however, is that supplier research is an ongoing process. The art and science of strategic sourcing dictates that constantly scoping and reevaluating suppliers is necessary to increase awareness of new products and capabilities, maximize contract leverage, and continuously reduce total landed costs.

3. Measure performance. High performance in global sourcing requires comprehensive performance metrics—identifying and measuring the business behaviors that contribute most directly to IPO success. As shown in the graphic, most of the top metrics focus on early-stage capabilities, rather than the more advanced (executional) IPO strengths.

This is not surprising given the relative newness of most IPOs and the need to continuously scope out and evaluate new suppliers and new supplies. Still, strides must be made to implement a total landed cost approach—specifying cost targets that concurrently consider acquisition costs; logistics costs; costs associated with customs, tariffs and duties; the cost of obsolescence; lost sales due to poor product quality or unacceptable service; warranty and service costs; and the financial ramifications of longer times to market.

4. Practice good governance. Beyond outsourcing and scrupulous performance measurement, good governance is critical to making an IPO work. Leading practices in the areas of governance and executive leadership include:

• Appointing a corporate lead from the home office to set the direction of the IPO.
• Appointing a local IPO coordinator for internal marketing.
• Focusing on senior-management-driven (top down) support.
• Assigning aggressive but realistic performance targets.
• Maximizing communication and transparency across operations.
• Emphasizing continuous training to reinforce corporate goals.

5. Develop the right operating model. Companies need a comprehensive operating model to align IPO strategies with their organizational structures and core supply chain capabilities. Without an operating model, everything becomes more difficult. Every organization will take a slightly different approach to this task. But the principal mission—integrating IPO operations with the broader procurement organization and global sourcing process—is fundamental.

That design should be driven by an organization's sourcing strategy, manufacturing footprint and the structure of its overall procurement organization. Thus its leaders might opt for “regional aligned IPO organizations” (with or without a central sourcing program management office) or autonomous IPO organizations (with or without a central/regional sourcing PMO).

More and more companies are using IPOs to reach high performance in global sourcing, and inculcating the above behaviors will clearly aid those efforts. Equally key, however, will be the flexibility to respond quickly as low-cost sources of materials and components morph into mid-cost sources. This is already starting to happen in China. And high performers—more than most—are ready.