In today’s fiercely competitive world, following the traditional sourcing practices will never be enough. Customers are constantly looking for better products at a cheaper price. To meet the demands, retailers are now bound to look for reputable suppliers who would provide high-quality materials at a competitive price. This is the reason the value proposition for global sourcing is skyrocketing.
The increased consumer awareness and heightened competition have forced companies to step out of their domestic borders and seek quality materials from the global market. This is where global sourcing comes into play. Essentially, it is a pre-meditated strategy set in place by procurement specialists to fare necessary materials in the most cost-effective manner.
Procurement professionals and experts maintain that a successful procurement strategy should enable manufacturers to source from both within and beyond their national borders. But in reality, most companies settle for sourcing from abroad owing to lower costs. However, there are ample risks in relying on foreign suppliers. While focusing on the least expensive rate, procurement agents may often neglect to research the suppliers’ background, test the quality of the material, or even fail to negotiate a reasonable, long-standing contract with the supplier. As a result, it may cost the manufacturers more in the long run than to alleviate total spending.
To avoid such outcomes, it is important for companies to have an effective global sourcing strategy in place. With the help of such an instrumental strategy, they can easily devise their own way to conduct successful business in this competitive marketplace. However, with the ever-changing nature of the global marketplace, the best practices for global sourcing are also evolving. But it is not as complex as it sounds. There are some basic rules to achieve a successful global sourcing strategy in today’s competitive times. Read on to know the top five techniques of implementing a successful global sourcing strategy.
Building a Strong Team
No one can snatch a win playing solo. As time changes, more and more organizations are taking the ‘team approach’ to leverage the benefits of collaborations and diversifying their resources. This could prove to be beneficial in making sourcing decisions as well. To get the best out of your sourcing strategy, employ a cross-functional group of experts/ professionals from sourcing, finances, operations, and other key stakeholders directly involved with the product development. Also, you need to choose team leads carefully so that the tasks are effectively delegated and collaborations are perfectly managed throughout the process. You can also employ subject matter experts if deemed necessary. The team will be responsible to operate in the following sectors:
- Develop a Concrete Plan and Scope of Work: The first step of getting a successful global sourcing strategy underway is to develop a detailed and clear work plan, chalking out the specific details of the sourcing and related actions required in managing the strategy.
- Data Collection: Gather information associated with the material to be sourced. The data must be detailed and specific. This helps the team to negotiate with the supplier in the long run.
Market Research
Market research is perhaps the most crucial part of developing a sourcing strategy. The point of performing the research, to be precise, is to assess the current market conditions and use them to test the ability of potential suppliers to deliver the material under the same conditions. To obtain the most accurate results of your market research, it is advisable to get data from multiple credible sources. Industry trade journals, trade consultancies, annual corporate financial reports, industry conferences, or associations could be a good start for gathering authentic data. Further, compare and contrast the data to prepare a comprehensive report.
Strategic Development
Once you have your comprehensive report on market conditions, supplier information, user requirement, business activity, and forecasted spend, it is now time to create an itemized supplier evaluation report. Think of it as a scorecard, where you rank the potential suppliers according to their suitability in different categories. It must include the following criteria:
- Cost structure
- Manufacturing capacity
- Management capability
- Quality
- Regulatory compliance
- Technological capacity
- Financial health
Bidding, Negotiation, and Contracts
The next step of your global sourcing strategy is to put the project out in the marketplace for bidding. There are three common types of bids that can take place—Request for Pricing (RFP), Request for Information (RFI), or Request for a Quote (RFQ). You should only enter into a contract with a supplier if you are confident enough that they are capable to meet your requirements complying with all the rules and regulations. But first, you would want to negotiate terms and conditions face-to-face with them. This is better handled by experts. Even developing and realizing a contract should be done by professionals. Ask your company’s legal team to handle the job for you. However, the sourcing team must act as the bridge between the two parties to resolve all sorts of queries, figuring out scopes of correction and alterations, and most importantly, oversee the practicability of the final contract.
Relationship Management
Once you have the supplier finalized and the contract set in place, assign a relationship manager to keep in touch with the supplier and coordinate both parties. To materialize an effective sourcing strategy, it is important to constantly monitor and nurture the relationship between the manufacturer and the supplier. More importantly, the supplier must be re-evaluated on a regular basis, depending on the status of the product under development. Relationship management can be entrusted to anyone, be it someone from the quality control or operations, sales or legal, as long as they have a comprehensive knowledge of the project.
To sum up, a successful global sourcing strategy is a continuous process. You don’t just device a plan and set it in motion. Rather, you have to regularly monitor, nurture, reassess, and modify the strategy based on changing demands and market conditions.