Global sourcing is an integral component of supply chain management that helps determine the most cost-effective procurement strategy for developing a product. It also involves the calibration of the procurement process to optimize supplier selection, negotiate product cost, and improve time-to-market, to name a few.
By aggregating the most suitable international suppliers and developing reliable sourcing plans, an organization gradually builds its global sourcing network. Advantages of meticulously assembling a global sourcing network include better control over production, expedited supply chain outcomes, and shorter lead times.
To continuously develop high quality products, and gain greater value, procurement departments must seek global sourcing providers with proven track records. While local buying presents an array of benefits, including better supplier evaluation and the ability to rush orders, offshore sourcing can significantly improve an organization's bottom line.
For an organization to get quality results at a minimal price, a global sourcing strategy often comes into play. This sourcing initiative can either be automated or outsourced, so that the core business processes and product innovation can continue at a desirable pace.
An organization typically opts for a global sourcing approach as a way to procure high-quality raw materials that can reduce the cost of production. Based on the global sourcing objectives and sourcing plan, there are several different types of global sourcing networks, including:
1. Keiretsu Networks: The meaning of the Japanese word 'keiretsu' is ‘group.’ This type of global sourcing network consists of suppliers, manufacturers, supply chain entities, distributors, and financiers that work in long-term partnerships with each other, often sharing proprietary technology, and forming closed supply chain ecosystems.
2. Joint Ventures: Within a joint venture, the client organization buys an equity stake in the global sourcing provider's company, helping establish a joint proprietorship over the end product.
3. Supplier Vertical Integration: The global sourcing entity focuses its core competencies to specialize in supplying a single component of the client organization's product, reducing transaction costs and favoring further specialization.
4. Multi-Vendor Offshoring: An organization may have multiple vendors supplying various raw materials. This helps reduce risk in its procurement processes, as there are multiple options to fall back on in case a vendor fails to supply.
The strategic sourcing process has become an essential component of global business. However, like any new way of doing business, global sourcing also comes with its own set of challenges:
- Government Regulations: Each vendor source country has its own regulatory conditions and compliance standards which need to be adhered to. Moreover, there are local laws governing the extraction of raw materials for sourcing that may sometimes be too complicated and expensive to navigate.
- Internal Non-Compliance: Internal stakeholders may be reluctant to share critical information with suppliers due to a lack of confidence, and the risk of disclosing confidential information.
- Foreign Exchange Fluctuations: There will always be some degree of foreign exchange fluctuations due to a number of factors, such as stock market changes and political upheaval.
- Scheduling Issues: Organizations need to account for factors, including lead times, for the production of raw materials in order to prepare for possible payment delays and operational complications. Time differences can also play a major role when sourcing from the other side of the globe.
- Supplier Vetting: Supplier data aggregators have simplified the process of finding the right suppliers, but a lack of on-ground vetting can lead to a mismatch in quality expectations.
Utilizing global sourcing networks generate opportunities in a variety of ways. Benefits of developing these networks include:
1. Limitless Scalability:
The majority of global sourcing locations have devoted significant amounts of their economies and investments to manufacturing. This helps deal with spikes in customer demand by quickly scaling up sourcing efforts.
2. Value for Money:
Businesses can benefit from lower labor and production costs abroad thanks to the opening up of the global market and greater ease of doing business. This helps boost your bottom line without having to overly increase operational overhead.
3. Higher Quality:
High-quality products can be ensured when working with a reputable global sourcing firm. Experienced global sourcing firms have a wide network of reliable local partners who can guarantee that all aspects of quality control have been taken care of.
4. Competitive Advantage:
Global sourcing makes it possible to gain access to new breakthroughs before rival companies by working with suppliers of innovative solutions. Businesses that have access to this rare or hard-to-find talent set can gain an advantage over their rivals.
Some key trends shaping the immediate future of global sourcing include:
1. Procurement-as-a-Service: These are digital platforms with an emphasis on analysis, optimization, and simulation capabilities for procurement.
2. Sustainable Practices: Sustainability in sourcing strategies involves the incorporation of social, ethical, and environmental performance criteria during supplier selection.
3. Circular Supply Chains: In this emerging trend, products are returned or processed so that their components can be repaired, resold, reconditioned, or recycled.
4. Greater Transparency: Organizations are innovating to improve transparency in procurement by working with suppliers to get knowledge on upstream value chains.