The term global sourcing is not very new, particularly, for present-day supply chain professionals. In the recent past, especially, the term has gained tremendous popularity due to its massive influence on businesses in general and supply chains in particular.
What is Global Sourcing?
This is a sourcing strategy where organizations opt to buy beyond the geopolitical boundaries, with an objective of achieving some competitive advantage. The competitive advantage could be in terms of higher quality, better prices, advanced technology, and cheaper labor, among others.
When Should you Consider Global Sourcing?
Due to its complexity, global sourcing may not work for every supply chain. It is, therefore, imperative that you critically analyze your supply chain. To gauge your preparedness for global sourcing, you need to look into some parameters, some of which include:
- Working capital structure
How you finance your operations will inform the decision to engage in global sourcing or not. This is because your financing strategy has to agree with the payment terms offered by your global suppliers; for instance, if you depend so much on debt financing, global sourcing may not be your thing since in most cases suppliers will ask for advance payment.
- Lead Time
Often, the lead time for globally sourced materials is relatively longer than that of locally sourced materials. Consequently, you need to be thorough in your demand forecasting as well as have enough buffer stock to take care of unforeseen demand.
If you are often dealing with unforeseen emergencies, global sourcing may pose a major challenge to your operations.
- Skill Set of Your Staff
The staff in your supply chain needs to be well versed with the knowledge of international trade. If there are capacity gaps, you may consider forming purchasing consortiums with other organizations to complement each other.
You can also use international purchasing organizations as procurement agents to identify key cost-effective suppliers globally and also manage the entire sourcing process for you.
- The Flexibility of Your Supply Chain
The more flexible your supply chain, the more suitable global sourcing will be. Lean supply chains, which call for stronger supplier networks, may find it difficult to implement global sourcing.
Any Benefits From Global Sourcing?
There are numerous benefits that come with global sourcing. Some of them include:
- Reduced Operational Costs
Competition is a powerful tool in any business. Once you engage global suppliers, it means higher competition, which ultimately results in price reduction.
- Higher Product Quality
Access to better technology that otherwise may not have been available locally results in higher quality of your product. Ultimately, you gain a competitive advantage over your competitors, which has a great impact on your bottom line.
- Access to Materials and Skills That are Locally Unavailable.
Thanks to global sourcing, you are able to access skills and materials that are not available in the local market. Production is made easier and cheaper through the global sourcing concept.
Parting Shot !
To effectively deliver the five rights of your customers (delivering at the right price, quality, quantity, time, and place) and achieve your bottom line, you have to keep pace with the market dynamics.
One proven way of doing so is through global sourcing. Any time you think of your bottom line, see through global sourcing and the results will definitely amaze you !