Global strategic sourcing is a process within the procurement industry used to try and take advantage of the delivery of goods all over the world, as well as the services that provide this.
Global Strategic Sourcing works by coordinating the world’s production and operation inputs in the most cost-effective way for businesses. For example, the hiring of people to complete the delivery tasks, the suppliers, materials, machinery or technology, and any other facilities that may be required by the company.
In this article we will be discussing the risks and benefits of global sourcing for any business, helping you to decide whether this is the best option for you. As well as, whether a new strategy may be the best way forward for success.
Effective Management
It’s no secret that the manufacturing of products in a low-cost country is a much more cost-effective method than that of doing so in a highly developed country. In order to receive the full effect of the cost differences, the business strategy needs to be managed with the highest level of efficiency.
The benefits of doing this are ultimately undeniable, with the company being left with more time on their hands, less stress and the freedom to take the business in whichever direction that they wish. It is just a case of having the willpower to hand over the sourcing needs to that of an outsider
Better Quality Control
By having a global sourcing strategy performed by a trusted business, companies can be assured that all of their manufacturing deliveries are run through efficient quality control. In addition to this, by maintaining a standard level of quality, each element will be tested rigorously at every appropriate level. As well as this, by enforcing better quality control, it can help to establish and maintain a relationship with the companies suppliers. By creating a positive, working relationship, you can ensure that each product is created to the manufacturer’s best ability. You may even want to consider incorporating some degree of automation into your quality control process to prevent any issues that could arise with global sourcing.
Higher Perceived Value
When it comes to manufacturing and sourcing a large selection of products globally, one key element that is often overlooked is the perceived value of the product.
By using a global sourcing strategy, businesses can distinguish between the different factories that produce low-cost but high-quality products. By choosing to partner with a company that creates high-quality products, you can remain confident that you are purchasing products that consumers will snap up.
Everyone loves splurging on an item that costs almost nothing but appears more costly than it truly is.
New Product Development
A great benefit of using global sourcing within the business is being able to develop new and innovative products, at a fraction of the price it would normally cost. Companies have the ability to practice then it comes to innovation and development of products overseas, where they can both manufacture their previously designed ideas while creating new innovative products.
Because of this ability, businesses are able to produce products at such a rate that may go much faster than that of their competitors. By creating and shipping new products at a faster speed, along with ensuring that they are at the forefront of the latest trends, will work to generate a high volume of sales. This they can achieve by supplying customers with the latest modern products.
While there are many benefits to incorporating global sourcing within your business, there are a handful of risks too. Affecting many businesses, these risks can be faced when tasks are rushed, not researched or completed on a whim.
Financial Risks
While global sourcing can make huge savings on overall costs when it comes to the manufacturing and development of products, what some businesses fail to remember, is the additional payments that will be created. These additional costs are often generated after the manufacturing process has been completed.
These additional charges often experienced can be described as delivery charges, overhead costs, and the possible execution lapse, that forces more to be paid out, and time schedules to be lengthened within the process. Potentially adding up and cutting away from any potential savings made, when it comes to the risks of global sourcing, unexpected costs are often overlooked.
What makes financial risks within global sourcing different to that of other industries is the risks surrounding basic operations, currency fluctuations, continuity risks, cancellation costs, and supplier solvency. Each of these risks may be worst-case scenarios or decide to be hidden away behind the positives that surround global sourcing. Yet these risks are all the features that can still occur at any time, likely taking a large sum of money from what would have been profit.
Environmental risks
When conducting global sourcing for your company, there is a chance that not only your business could come under scrutiny, but also the carbon footprint of that of the products and services you are sourcing.
If not managed well or preplanned, criticism raised through the company’s apparent lack of awareness could ruin the brand’s name. Environmental factors could add to global warming through manufacturing pollution, the disposal of produced waste, and even in some cases causing drought or water shortages to areas around the world.
By doing it cheaply, one can only imagine the pay rates, working conditions, and those who will be hired to do the work in the first place. All these factors spiral into the emotions many people face, which lead them to disagree entirely with the whole process of global sourcing, and why it should not be done.
Time Risks
Every business will know that things can fall out of place at the entirely wrong time, and cause havoc in a way that sometimes cannot be fixed, especially when manufacturing is taking place across the world. Issues cannot be resolved quickly, so time schedules become delayed.
Time issues faced when globally manufacturing can result from time differences between countries, compliance issues, delivery and shipment times, and the problems that may occur between these such as weather conditions if they are shipped by boat or plane, or the barriers faced if there are trade issues when entering a new country, with these manufactured goods.
Lead times that come within the development period are usually quite substantial, and relatively long, but things can still change and runovers can happen. Not everyone has the time or money to leave their place of work and travel the world to their manufacturers, time quickly becomes money lost.
Summary
Global sourcing is a business strategy that will likely be happening for many more years to come. From its ability to stretch productivity, while holding minimal payment levels, any businessman with a goal will certainly take this account saving route.
However, while there are many benefits from owning a global sourcing strategy, there are also a few risks. From overcoming the negative hurdles that come with overseas manufacturing and the connotations the brand name may face, alongside financial, environmental and time risks, a business who decides to take this route will have to ensure their procurement company are trusting, confident and know exactly what they’re doing, to diffuse any possible causes of these issues taking place.
