Global Sourcing

Global sourcing

A procurement strategy in which a business seeks to find the most cost efficient location for manufacturing a product, even if the location is in a foreign country. For example, if a toy manufacturer finds that manufacturing and delivery costs are lower in a foreign country due to lower wages of foreign employees, the company might close the domestic factory and use a foreign manufacturer. See also outsourcing, international procurement organization (IPO)

What Is Global Sourcing?

According to Wikipedia, global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs.

The whole point of global sourcing is to find better sources of supply around the world, offering improved quality and lower prices.

How To Make Global Sourcing Work

Here’s a five-point strategy for making your first global sourcing foray successful.

1. Source to a country with low labor costs and good quality control.

Companies typically enjoy a 10-35% cost savings by sourcing. In the past, China was considered the go-to country for the lowest pricing and acceptable quality. (Be careful here because the transportation cost alone from China to your factory door can jack up the price considerably on your landed price per unit; make sure the price your supplier offers sans transportation costs beats all other competing supplier bids a hundred times over to ensure you end up with the lowest possible price). But now, companies are turning to such destinations as Korea, India and Vietnam for alternative low-cost country suppliers, especially since China is slowly raising its pricing.

The key to global sourcing success lies in you doing your homework in advance. Know what pricing you need and the quality, product specifications and timeline that will fit with your overall strategy.

2. Source to a country where you can take a plane ride with comfort and ease.

Once you enter into a relationship with a supplier thousands of miles away, you will want to visit as often as warranted. These visits are to spot-check the supplier’s facility to ensure they are complying with local laws and regulations, monitor its work force (no sweatshops!), access the market on the ground to learn of any competitive threats or supplier knock-offs that might be in the works and, lastly, see that your product is being made to your specifications.

Having said all this, you have plenty on your plate, so why pick a market that is hard to get to or expensive to visit often and is not visitor friendly? Think this through. Since you will be traveling to this market often, love it and get comfortable over the long run. This is a strategic decision you are making, not a flash in the pan or tactical move that offers a quick short-term solution!

3. Source to a country where you can understand the language.

Let’s say you’ve traveled to Vietnam and were lucky enough to find a good interpreter for your business meetings. He or she does an excellent job handling negotiations, and after hours of working through the deal, your interpreter leaves the room for a short break at a critical moment. Your key Vietnamese contact says: “I want to buy 20,000 of your widgets.” And your response is a blank stare. Why? Because you don’t speak the language and have no idea what he said. Sure, this sounds like a far-fetched example, but it can happen and will happen if you don’t have an employee who watches out for your best interests and speaks the language of the country where you are about to conduct business.

Don’t take chances. Either do business in a country where you understand the language, don’t do business there or hire a person who is proficient in the language that is being spoken. Communication is crucial when dealing with global supply sources. Details matter. That’s what quality is all about.

4. Source to a country where you can respect and abide by the laws.

China sound complicated? Then don’t go there. If you are reading too much lately about how China does not offer appropriate intellectual property protection to companies, then take your sourcing business elsewhere. It may or may not be true, but the uncertainty alone will never allow you to feel completely confident about a supplier.

Go to a country where legal protection is available and the laws are clear, easy to comply with and enforced if broken. For example, Vietnam is a member of the World Intellectual Property Organization (WIPO), which offers a legal framework and measures for intellectual property protection.

5. Source to a country where you can trust the people you do business with.

You must become a true insider wherever you decide to do business, and the only way to accomplish that is to get to now the person with whom you wish to have a relationship, no matter how much time it takes.

If you don't trust and respect your supplier contact, there’s no point in continuing the relationship. If it doesn’t work out, you’ll survive. And, who knows, you might even meet someone else with whom you can do your best and most inspired global sourcing business.

Once you’ve found a good global source of supply, ask yourself this: Are we buying from the best supplier in the world, at the best price and best quality, and from the best part of the world? If you can answer unequivocally “yes,” then you are on the right track.