Global product sourcing is a procedure that can be considered as a procurement strategy. This strategy is utilized by an enterprise that works to determine the best product manufacturing location at minimum cost. This means that the manufacturer will find out the most cost-effective location irrespective of any geographical limitation. For example, suppose a cement manufacturing company finds that the raw materials cost, and the manufacturing cost is lesser in a foreign country. In that case, he will set up a plant in that country. He will do so because the workforce there is cheaper as compared to his present location. Therefore, he would decide to shut down the domestic plant and start producing cement in a foreign location. These global sourcing services are performed in several stages. These stages are essential as they will help the supplier source the required products at reasonable rates and ultimately benefit the buyer with the expected products. Read on to know about the various stages of global sourcing and the multiple factors addressed by global sourcing strategy.
Stage 1- Investigation and Tendering
At this stage, the enterprise mainly focuses on identifying the non-core and core operational activities. He then attempts to analyze the requirements of the market and the customers properly. Finally, he puts forward the step in which he identifies his competitors. The final step is crucial as it will help the enterprise to source the required products. This will also allow the enterprise to develop the firm’s business objective, position the brand accordingly, and develop an idea about the prospective markets.
The business plan, thus developed by the sourcing specialist and executive, will help in outlining the strategic sourcing scope. Besides, the baseline and the primary working strategy required to calculate the performance are properly documented as an essential procurement procedure plan.
Stage 2- The Supplier and Market evaluation
A comprehensive list of selection benchmark is developed by the enterprise for selecting the required suppliers. This list is then used to mark the most appropriate suppliers that will fit in the requirement square. The results developed from the selection process’s finding will further modify the strategy and help the enterprise create the final costing model. In turn, this will create an estimate for the economic and operational benefit of the project and send the RFIs to the suppliers who have been shortlisted.
Stage 3- Sourcing Event (Selection of the Suppliers)
The RFI dispatch results will finally shortlist the supplier from the previously created list of suppliers. The enterprise will then carry out negotiations for the products, and this event would come to an end by a supply agreement. The supply candidates who have been finalized will have to go through a technical assessment. This will help the enterprise to get an idea about the savings estimations. After creating the estimates, an implementation schedule will be developed that will outline the supplier’s timeline.
Stage 4- Implementation
The development of implementation process will require a schedule that will perfectly outline the performance. The implementation team will perform the task of creating a performance analysis schedule. The procurement agent will form the procurement team to publish the strategy and complete the implementation process schedule. The implementation team will then carry out several agreements related to the resources, logistical arrangements, and shared supply.
This stage will also focus on the external and internal supplier results. These results will help the enterprise carry out periodic reporting and measurement of the implementation team’s actual performance.
Stage 5- Performance Monitoring
At this stage, the supplier’s performance is independently measured by the implementation team. The team can also measure the performance depending on the supply partner’s processes and resources. This is required to be done routinely and must be reported accordingly. The main objective of this stage is to check if the procurement process is efficiently maintained or not.
All these stages will add up to create a procurement process that is dynamic, flexible, easily adaptable to the changing environment, and serves the global sourcing services accurately.
What are the different factors addressed by a good global sourcing strategy?
The strategies of product sourcing mainly aims at benefiting from the lower cost of labor in foreign countries. However, the organization is bound to face additional charges apart from the domestic transactional costs, such as broker fees, insurance, taxes, freight charges, bank fees, etc.
The sourcing specialist and the supplier will create a contractual agreement only after considering the rules that will apply when developing such a contract. This includes the laws of the buyer’s and the supplier’s country or any applicable law between the two countries.
Certain buyers will claim that the transactions should be made in the buyer’s currency for simplicity. However, a careful buyer will always choose to carry out the transactions in the supplier’s currency because the buyer’s currency will become stronger over the period between the supply and the eventual payments.
The lead time is significantly longer for global purchases than domestic sources. This is because overseas travel is usually slower unless the air route is chosen. The custom’s clearance process also takes additional time for completion, which does not occur with domestic sources.
Culture and Language-
This plays an important factor that needs to be looked after. The misunderstanding risks eventually increase when the procurement agent is not familiar with the supplier’s language and culture. This often leads to miscommunication and awkward encounters.
Global sourcing necessitates multiple modes of transport that require combining water or air transport with the road transport which is then brought to the supplier’s port to the buyer’s port, and finally to the place of business.
Almost every industry is choosing global sourcing services as an alternative. But every marketer needs to note that dealing with the global sources would mean dealing with constant changes in the rules and regulations. Therefore, it is very important for every business owner to thoroughly go through the different stages of a global sourcing strategy to address the market’s challenging environment.