Global Sourcing Defined
Global sourcing is a strategic function that establishes the criteria, policies and tactics for evaluating, selecting and negotiating with overseas suppliers. Carried out within the framework of an integrated global supply chain and in support of the purchasing function, product sourcing activities can be categorised on a macro and micro level.
Macro level sourcing considerations focus on broader-based factors and capabilities, often-times related to a region, country and/or industry sector. Examples of macro level variables in a Sourcing equation include a country’s political system, commercial law (contract enforcement), work-force education level, labor and environmental laws, reliability of the power grid, internet access, road and port infrastructure, customs and regulations, and industry specific ecosystems (tier I, II, III vendors).
Micro level considerations focus more on individual vendors and include company size, ownership structure, production capacity, number of locations, workforce size, manufacturing expertise, price negotiations, engineering skills, use of subcontractors, product quality standards, technology know-how, experience in global trade and use of Key Performance Indicators (KPI).
In short, global sourcing is a ‘strategic business philosophy’ that coordinates the world’s most cost effective production and operation inputs such as men, materials, machines, technology, suppliers, engineering and other required facilities.
Evolution over the years
The sourcing discipline has changed drastically over the last one or two decades. Prior to the 2000s, sourcing and purchasing were often considered to be synonymous terms, especially when one considers that almost all purchasing was done domestically. As we well know, there’s a big difference between sourcing domestically versus sourcing internationally
These days we’re able to source components and ingredients from all over the world. Even something as simple as a nutrient bar has components such as citric acid from the EU, soya from Denmark, vitamins from China, guar gum from Thailand, high-fructose corn syrup from the US, etc. We’re able to do this because we have had huge improvements in information technology and the Internet has allowed us to connect computers and systems all over the world making global sourcing and supply chains a reality.
Advantages of Global Sourcing
- Low Manufacturing costs.
- Ability to utilize skills and resources not available locally.
- Exploring alternate sources of supply, diversifying risk to the organization.
International Procurement Organizations/ Procurement Service Providers
Professional procurement services have emerged as one of the leading areas for cost savings and long-term growth in organizations across the globe. Due to the complexities and uncertainties of global sourcing, International Procurement Organizations (IPOs) or Procurement Service Providers (PSPs) are important institutions that help remove the discrepancies that have crept in the global sourcing system. The IPOs/PSPs take the responsibility of performing all functions and managing the inputs required for economies of scale. Such IPOs provide great help in country based sourcing efforts and meet the requirements of parent organizations.
For instance, in case of low cost manufacturing countries like Thailand and Philippines, which have a large range of sub-markets for raw materials and finished goods and suppliers that span the whole value chain of goods and services, the role of partnering with IPOs/PSPs’ can be crucial. They provide all relevant and essential up to date on ground information.
Thailand Sourcing Services offers long-term procurement and sourcing solutions for a varied set of industries worldwide. We offer leadership in all areas of procurement- from identification of needs, supplier identification and benchmarking, supplier communication ,negotiation, liaison and supply chain management. Through Thailand Sourcing Services, clients can access reliable and knowledgeable resources on procurement in Thailand and Asia Pacific. The teams at Thailand Sourcing Services have extensive experience in propagating business in Thailand and APAC and low-cost sourcing from Thailand, Indonesia, Taiwan, Malaysia.
Managerial Issues Associated with Global Sourcing
Buying merchandise/raw materials from overseas may be cheaper than from vendors located locally. Vendors that are situated overseas are where the majority of the retailers get their merchandise and make a huge profit globally.
Following are the managerial issues associated with global sourcing:
- Quality Control
Quality control involves testing of units and determining if they are within the specifications for the final product. The purpose of the testing is to determine any needs for corrective actions in the manufacturing process. Good quality control helps companies meet consumer demands for better products.
- Building Relationships with Vendors
Vendor relationship management is deepening the buyer-supplier relationships to achieve a mutually beneficial goal and establish trust. An efficient vendor relationship management process can deliver a number of key benefits from quality increments and improved total cost of ownership (TCO) to new innovations and a much smoother flow of data.
Building relationships with suppliers overseas is difficult but if made correctly, can do wonder for both sides. Domestic retailers look global sourcing not only for lower costs, but also to improve quality, prompt deliveries and develop innovations to keep them a step ahead of their competitors