Global sourcing is a process of sourcing goods and services from the international countries across geopolitical boundaries. The main purpose is to exploit global efficiencies such as lower cost skilled labour, inaccessible raw materials and other economic factors like tax breaks and low trade tariffs. For a variety of reasons, procurement manager at many companies are considering whether or not they should be buying products from international sources.
Companies are facing higher expected costs of materials and labour than sourcing locally. Many companies are still making procurement decisions based primarily on unit cost however there are still companies making global sourcing decisions based on inaccessible technologies and well-educated workers. A successful global sourcing will give a tremendous opportunity to reduce costs, especially labour cost.
Calculating Total Cost
Most companies focus mainly on the lowest unit cost. However, unit cost is just one piece of the total cost equation. Other factors like the transportation, customs duties and taxes, brokerage services, financing and insurance, etc. Additional, unexpected costs like customs examination and flight delayed are also to be considered. Delays in supply chain like machine breakdown will cost additional handling/ storage cost or some company may even need to charter a flight just to meet the delivery date.
Quality is an important part of any souring business. The quality of the merchandise will certainly cause consequence over and higher than the cost. Hence, quality needs to be defined as issues regardless of vendor through culture, time zone or geographies. Poor quality costs company money in terms of productivity problems. If an organization uses low-quality elements, systems break down, regardless of any high-quality parts also used.
Low-quality elements will cause mechanical breakdowns, as well as work slowdowns or even stoppages. Poor quality affects everything downstream and might cause client discontent. Moreover, defective product may have to be sold at a reduction or written off as a loss.
Logistics and Transportation
All the good merchandise and quality can mean nothing if you’re unable to deliver the products to the market thus there should be a reliable transportation infrastructure within the country from the source of supply (SOS)to the port. It better to plan alternative plans and route just in case the original plan or route is unavailable.
Countries that share the same language may make it a more attractive to source goods from. Better communication leads to benefits such as mitigate conflict create better client relationship. In addition, common cultural differences and similarities, including language, are known.
Trade regulation is a fact of life in any industry, and businesses that learn to work with rather than against government authorities can save themselves a good deal of time and effort dealing with fines and other legal issues.
Any discussion of buying and selling would be incomplete without evaluating the financial aspect, in addition to looking at the actual cost of goods.
- What incoterm can be used?
- Is there any finance rumours about the manufacturer?
- Is there insurance covered?
- Is there enough truck to deliver the product?
- Is there any tied-up inventory that affects your cash flow?
Time to Market
Gaming products had a very competitive market thus if your competitor has product available more quickly than yours, there are high chances for your lost market share and lost revenue. Therefore,it is important to choose receptive supplier who is able to accommodate to demanding changes such as expedite production by increased head count on production line or expedite delivery to market.
Are there additional services available at origin to add value to the product? Is a RFID tag help in improve the lead time of location the inventory? Does the supplier ensure packing & labelling is done nicely? Does the supplier guarantee that it will pack the freight to ensure it arrives intact at destination? A new importer might make the mistake of cutting corners on the packaging lithium ion batteries.
Using non-compliant packaging when shipping lithium batteries could result in dangerous situations. But when a type of transportation not suitable for the product is chosen, the consequences could be enormous. It is also important to follow the regulations when packing lithium ion batteries otherwise the product could be damaged and people can be exposed to dangerous situations. Such a situation has the consequence of lost product, lost sales and significant cleanup — all costlier than investing in the original dunnage at origin.
Communication and IT capabilities
There are a variety of technological trends and innovations which have an impact on the use of information technology in logistics. Electronic Data Interchange (EDI) is important to the current and future use of information technology to support logistics operations across all industry sectors.
Electronic Data Interchange (EDI) refers to the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents from one computer system to another, for example, from one trading partner to another trading partner. It is more than mere Email; for instance, organizations might replace bills of lading and even checks with appropriate EDI.
The Human Factor
That is not always a matter of course, but can nevertheless be a crucial part of the decision; there is a real human effort to visit and work with suppliers overseas. In excess of the obvious costs of airfare, hotel and food. If someone is spending a day or more traveling, fatigue comes into play. For example, an employee who has to book a low-priced economy flight on a long-distance route may be so worn out on arrival that he or she could end up blowing up the deal.
Different culture needs to be considered ahead of time to avoid in insulting the hosts. For example, do not pour your own drink if you are eating with Korean supplier. It is considered rude to pour your own cup. For Spain, don’t plan anything important on Tuesday 13 or Tuesday in general. They believe is not Friday the 13th bring bad luck but Tuesday. On Tuesday, don’t get married, don’t board (on a ship or plane), and don’t leave the house.
There are several factors to consider in global sourcing. All of the consideration included of pros and cons that increase in profits or increase in expenses and risks. Therefore, many corporations attempting global sourcing find the advantages are less than anticipated however, companies that source globally are significantly better at translating supplier integration and proficiency in supplier integration into higher levels of product innovation actually sourced from suppliers.
Charles Hope (2017) “What is Global Sourcing and How Can It Benefit Your Business?”. Retrieved from: https://medium.com/@charleshopes90/what-is-global-sourcing-and-how-can-it-benefit-your-business-537fb19ade43, accessed on 25/12/18.
Himanshu Agarwal (2017) “6 Factor to Consider While Global Sourcing Globally”. Retrieved from: https://www.tgdaily.com/business/6-factors-to-consider-while-sourcing-globally, accessed on 23/12/2018.
John Brockwell (2008) “Is global sourcing really worth it?”. Retrieved from: https://www.sdcexec.com/home/article/10289618/global-sourcing-is-it-really-worth-it, accessed 16/12/2018.
Lau Chee Leng, DPSM. (2018). “Eight Essential Steps for an Effective Global Sourcing Strategy”. Retrieved from SIPMM: https://sipmm.edu.sg/eight-essential-steps-effective-global-sourcing-strategy, accessed 16/12/2018.
Peggy Ang Pei Qi, DPSM. (2018). “Key Factor to Consider for Global Sourcing”. Retrieved from SIPMM: https://sipmm.edu.sg/key-factors-consider-global-sourcing/, accessed 16/12/2018.
Purchasing & Procurement Center (2017), “So what is global sourcing?”. Retrieved from: https://www.purchasing-procurement-center.com/what-is-global-sourcing.html, accessed 15/03/2018.
Rohan Agarwal. “Global Sourcing: Pros and Cons of Global Sourcing”. Retrieved from: http://www.yourarticlelibrary.com/retailing/global-sourcing-pros-and-cons-of-global-sourcing/48207, accessed on 25/12/18.