Now that your organization is experiencing higher than budgeted growth, you are all set to expand it. You have placed your mind in a position where you can take your organizational success to a whole new level by expanding it globally. But you should also consider certain things before you take such a pronounced decision of global sourcing services. The raw materials you will be sourcing, the core activities your employees will be focusing on, and a lot of other things. These activities will require careful considerations and thoughtful decisions. Also, you will need to audit if these decisions will contribute to enhancing your overall profit margin. If you cannot gain cost benefits, it is not worth sourcing your products on a global scale. If sourcing goods globally would be too costly, you might have to rethink.
With so many factors affecting your decisions and next-stage actions, the following are the basic points you need to consider before your organization look to source products globally. Read on to know the fundamental factors.
Type Of Components And Raw Materials
As you all know that the procurement process is a strategic aspect that helps in driving sales for the organization while looking at the organizational cost benefits. The quality of the raw materials has ramifications over and above any other factor that affect the procurement strategy. These include several questions like if the supply of raw materials will be limited or if the materials will be supplied as components or raw materials. You will also need to consider if the suppliers will make any modifications before the materials are set to sell. Poor quality affects everything downstream and the essential part of having an efficient supply chain is having superior quality goods all the way through.
The type of raw materials you will source will have direct impact on the cost, transportation, handling requirements, logistics, storage, duties, and time frames. You need to consider these factors through effective procurement procedures when global sourcing services.
Total Landed Cost
You might think that focusing on the unit cost will bring profit for you organization as it is easy to do. But assuming lowest cost unit to be the good thing will actually do you no good as unit cost is just a particular piece balancing the total cost equation. There are several other factors you need to consider when balancing the equation. These factors includes transportation, banking fees, insurance and other unexpected costs.
Moreover, there are other unexpected charges you might require to pay if the customs want to go for a freight examination or if fumigation occurs all of a sudden. More charges. While these are just expectations, it is better to be prepared for the worst and plan your expenditures accordingly.
Competitive Advantage
This is probably one of the most important things you need to consider when sourcing products globally- your impact on your competitive space. Focusing on the competitive advantage will first have your attention in protecting the quality of materials and intellectual property. If you consider your intellectual property as the key part of your competitive advantage, you will have to be specific about the goods you will be sourcing from your suppliers. Your risk to competitive advantage will gradually increase with increased divulgence of your proprietary information.
Another thing that organizations need to be mindful is if they are dealing with realistic cost and focusing on every single detail they are spending, including planning, implementation, and transportation charges. If you want to gain competitive advantage by reducing cost margin, you need to make sure there are no hidden charges that will deduct the realized cost-benefit.
Culture And Ethics
Ethical and cultural differences can pose risks on business communications. It can complicate the relationships among buyers and suppliers, which in turn, can result in incorrectly placed orders or shipping delays. Miscommunication is the root of disruptions and frustrations in business deals. If you can afford to be culturally sensitive, there are eighty percent chances that you could mitigate the risks. Potential suppliers and sourcing organizations need to have a proper understanding of the cultural differences to interpret the impact of their behaviors on potential interactions. If the key sourcing agencies are unaware of these impacts, it could lead to miscommunications and hurt feelings, thereby preventing any attempt at business agreements.
Supplier Responsiveness
Time to market is becoming an increasingly essential factor for sourcing products globally. The responsiveness of the suppliers plays a vital factor in making ultimate sourcing decisions. For example, if your competitor is receiving the products more quickly and at a lower rate, the result could be lost revenue and lost market share. Therefore, it is essential for your supplier to be receptive, to make changes whenever it is required, and most importantly, must be able to accommodate changes.
When sourcing products at destination you need to audit your suppliers properly and understand if they are able to position themselves with the requirements. Say, if the sales are exceeding the expectations, can your suppliers ramp up their production speed? Negotiate these requirements before you source your products.
Compliance And Regulatory Environment
Different countries have different regulations, standards, and laws. These are the various aspects that can impact your sourcing decisions and standards, especially when you have decided to source products from a country that follows different laws. Sourcing from a different country could mean adding an additional requirement or cost. Now your country might consider this addition as illegal. When sourcing products globally, it is essential for you to remember that you conduct business from the end customer’s perspective. It is better to avoid questionable practices as they can have negative impact on your company’s reputation and brand.
These are the various factors you need to consider when sourcing products globally. These handful key factors can make your global sourcing decisions easier and more effective. The sourcing agencies must consider these factors before they think about sourcing globally. Once they make an informed decision by considering these factors, you can enjoy conducting a profitable business and add value to your organization.