Global Sourcing Tips

In order to reduce costs and get an edge over your competitors by offering quality and affordable products or services, global sourcing is considered the most feasible business strategy.  Global sourcing helps in procuring quality resources at low costs from emerging economies. In a time when most businesses are resorting to international purchasing, sourcing service providers are in high demand. Procurement companies not only help a business in making and implementing sound sourcing strategies, but also offer global sourcing tips.

This article endeavors to discuss about the concept of international purchasing and its major benefits. Before we go ahead with the discussion, let’s find out what’s the current market scenario.

With time, the demand for high-quality products and services is increasing in the international market.  Every company is trying to offer the best products to its clients. This gives rise to high competition among businesses that are looking to purchase low-cost raw materials, goods and even procure low-cost skilled labor from developing countries like India, Bangladesh, Vietnam and South Africa, and more. Global procurement helps a company to survive the cut-throat competition and gain customer satisfaction.

Global Sourcing – What is it?

Global sourcing is the practice of procuring resources from foreign countries. International purchasing helps businesses identify and leverage the competencies of different established and emerging economies. By sourcing from a developing market, businesses can leverage low-cost raw materials and skilled labor, also at a lower cost than in a developed economy. Businesses can also exploit low trade tariffs and tax breaks offered by some countries.

Global Sourcing – What is its Importance?

The practice of international purchasing when done right comes with a lot of advantages.

Competitive International Suppliers

The practice of global sourcing brings you in contact with foreign suppliers who can offer you good quality resources at the most competitive rates. You can reduce operational costs when you are able to purchase goods or raw materials from an international supplier at reduced prices. International purchasing gives you the opportunity to establish business relations with suppliers without facing risks in the different stages of supply chain. A reliable supplier makes sure that you receive goods in the right condition.

Access to Low Cost Products

With low prices and quality getting an edge over brand name, international purchasing is rapidly occupying a pivotal position in world trade. If you can obtain quality products with the same specifications at lower prices as that of the branded products, you will inevitably choose the less expensive products.

Avail High-end Technology

If you have an automobile business, you may outsource the manufacturing unit of your business to a country where you can make the most of its advanced technology. You may also buy components for electronic goods from a country, which offers them without charging much tariff.

Availability of Low-Cost Labor

By opting for global sourcing you can come across countries that have high population and offer cheap labor costs. If you procure from a developing economy, you can avail the benefits of skilled labor who agree to work at low prices. This approach is most beneficial, if you need labor-intensive services.

Have a Satisfied Client Base

With a constant supply of products, you can easily cater to the demands of your clients. Your clients will tend to buy products from you, increasing your profitability.

Focus On Core Competencies

The profits you gain from global sourcing can be used to focus on the core competencies of your business. You can invest more money in the major competencies of your business.

Global Sourcing – Some Significant Considerations

The process of international purchasing can be successful if you take into consideration costs, payment terms, working capital, quality, political environment, statutory policies, trade tariffs, supply chain risks, bureaucracy, and the financial state of the supplying country. Other issues that you must keep in mind are the flexibility of the supplier to react to changes in demand, your ability to track the demand scale of clients, the relationship of your country with the supplying country, the lead time involved, and the ability to stop a flawed product from reaching clients.

Here are some aspects you need to keep in mind when sourcing from abroad.

Easy Accessibility

You should make sure that you can easily travel to the outsourcing country when needed. After you enter into a partnership with a sourcing agency in the supplier country, you may have to visit the country at regular intervals.

Low Costs

You need to confirm that the costs associated with the sourcing process are low and do not reduce the revenue of your business. You need to keep in mind the direct costs, tariffs and the taxes that you have to pay. You should also see to it that you do not lose the money in transportation cost that you had saved availing global sourcing.

Convenient Laws

The laws of the supplying country should be suitable for you. If you feel that the policies of a company are not favorable for your organization’s business prospects, you should change the location from where you source products. Some countries do not have investor-friendly laws and policies.

Hassle-free Communication

It is important that you understand the language spoken in the supplying country. It is essential to be aware of the language and culture of the country where you wish to establish business relations.

Stages of Global Sourcing – What Are They?

Investigation and Research

This is the phase where you have to identify the operational activities of your business, the requirements of the market, and your competitors. This approach can help you realize the objectives and goals of your business, the market you need to target, and the position of your brand in the global market.

By creating a proper business plan, you can identify the sourcing scope. A procurement process plan created during this stage can help you delineate the parameters for measuring performance and the initial strategy of work.

Evaluate Market and Supplier

At this phase, the organization creates the parameters depending, on which it is going to hire suppliers. A sourcing agency can offer you global sourcing tips for determining the parameters. The supplier, that suits the needs of your business, is going to be approached by the organization. The sourcing strategy can be further altered to reach the final costing model. The sourcing department in your organization is then going to estimate economic and operational advantages of the sourcing procedure. Once, the supplier list is prepared, a Request for Information (RFI) is going to be sent to the suppliers.

Choosing the Right Supplier

A final list of suppliers is prepared by your sourcing team with the help of the sourcing agency depending upon the response from the RFI. Some suppliers do not respond to the RFI. They are deleted from the suppliers’ list. You can then start a negotiation process with the final suppliers. The sourcing agency representatives ask the chosen suppliers to offer savings estimation to them. The suppliers with adequate savings are chosen. Your next step is to inform the suppliers about the time, within which they have to deliver the products.

Implementing the Sourcing Process

You can create a performance analysis schedule. This schedule is going to state all the activities that you are going to undertake while implementing the sourcing process. The sourcing agency you hire is going to build the implementation team. It is then going to help the team publish the strategy and schedule of work. This is the stage where resources, shared supply and logistical arrangements are created.

You should also take the initiative to document the tentative external and internal results from suppliers. The sourcing agency offers regular performance measurement reports to your organization.

Monitoring the Performance

You can now measure the performance of the suppliers in terms of the procedures and resources used by suppliers. This report can help in understanding the extent of communication with suppliers. If there is any problem in the collaboration efforts between your organization and the supplier, you can make efforts to minimize them. Performance monitoring helps in maintaining an efficient global sourcing process. The procurement procedure should be ever-evolving and flexible as per the changing needs of the market and your clients.

A sourcing agency is equipped with the ability to inform you about the right supplier in your product category.