The year 2018 has brought enough distressing moments for the supply chain organizations worldwide. The global supply chains were overwhelmed with the United States administration’s decision to increase tariffs on importing heap of products and services, especially when importing goods from China. This has caused much of disappointment to the procurement organizations across the globe who could do nothing but were left dazed and perplexed. Although other countries were repaying a handsome amount as a whole in the form of tariffs on importing goods from the US, still the amount has not helped either.
The year 2019 was going to be worse. It was decided that the starting of the year would witness an increase in tariffs from ten percent to twenty-five percent on importing products from China worth of two hundred billion dollars. This was nothing less than an astonishment for all those companies who had already have their supplier bases organized in China. All those companies who have been maintaining a smooth sourcing relation with Chinese manufacturers till now have been hit hard recently by the US administration’s decision of levying tariff on US imported products and services. Among those who have been devastated by the US administration’s decision, a part have already started looking for other sourcing destinations, like Mexico and Eastern Europe and the other part with the right intelligence is looking forward to outsourcing requirements to Asia. Among all other nations, Asia sourcing is a prudent cost-saving destination and will continue to do so.
For the former part, who have not yet give a thought to maximizing sourcing opportunities from Asian markets, they need to first have some questions answered. Based upon these answers they can giveit a second thought whether or not to outsource their requirements to Asian countries.
Here is the list of four questions. Read on to know them.
Are You Insightful About Your Chosen Supplier Base?
Procurement leaders need to have knowledge about a number of things when initiating sourcing operations from the Asian markets. They need to have a deep understanding of the supplier market in Asia sourcing, need to have proper knowledge about the supplier market network, they require gaining insight into the market and services trend of the Asian market, and also need to have a clear understanding of the balance between demand and supply. Having prior knowledge about any disruption that might lead to an imbalance between demand and supply helps procurement leaders to deal with the disruption. They can put intelligence-enabled tools into action to make informed decisions about operations and take the necessary proactive steps.
There are other key aspects that procurement teams need to assess when looking at Asian markets. These include:
- Reviewing the entire supply chain system falls into a vital task that needs to be accomplished by supply chain leaders. A range of products and their prices have been affected by the increase of tariff on imported items. A thorough review needs to be conducted on these products, in turn, on the supply chain operations to mitigate risks. Solutions include e-sourcing the complete product line or looking for different sourcing opportunities to source additional products.
- Looking for multiple low-cost Asia sourcing destinations also needs to be considered a vital task for the procurement leaders. Identifying various geographies with competitive vendors, including Vietnam, India, and Indonesia can serve as a good opportunity for those looking for a conducive low-cost sourcing region.
- Calculation of all costs, including the trade duties and newly-imposed tariffs is vital. Factoring in all costs, including brokerage fees and transportation costs can help procurement teams examine the Asian market cost structure thoroughly.
Have You Chosen the Right Supplier Base?
A vast majority of organizations deal with suppliers who is unable to weather the storm whenever their suppliers have to comply with the quality standards of a changed or alternative market. For example, the inclusion of tariff on the imported goods from the US have essentially changed the quality standards and quality requirements of the goods. Now, it is comparatively easy for organizations to adhere to the present quality criteria. But suppliers might face a challenge while dealing with the changed quality requirements and standards. The second important, yet hectic thing to do is check if your existing supplier base is capable of dealing with this change. The right way to check is to conduct a financial and risk assessment for the new potential supplier base. This crucial assessment needs to be followed by a series of evaluations including checking on the capacity schedules, monitoring the product quality, and assessing other specific business criteria that is variable across categories and companies.
For example manufacturers will require to check the CE and ISO certifications and AS1900 certifications for thermocouple probes supplier base and engineer suppliers respectively. The requirements will greatly vary, making it even more difficult to choose the supplier base if they come from a culturally different country.
However, tier 2 and tier 3 suppliers have been witnessed to play an incredibly growing role when marginal pressure on the industrial sector increase. This further elevates the amount and depth of challenges forged around quality assessment. But even then if the challenges are navigated properly, the business benefits could actually outweigh the challenges.
What Is the Negotiation Strategy?
Procurement leaders need to frame an effectively robust negotiation strategy. Intelligence such as competitor pricing, supply-demand balance, standard market pricing, volume of supply in the market, can work as efficient negotiation levers. For example, buyers can set a particular quote and suppliers, if wanting to proceed with the said buyers, need to adhere to the specific quote. It can finally stop the suppliers from overcharging. This way buyers have to negotiate with the suppliers in changed situations and carry out Asia sourcing activities where quality assessment has increased as a result of imposition of increased tariff.
If buyers have the answers to these questions and in the right way, they can proceed with initiating sourcing relation with Asian countries.