One of the main reasons why some organizations put their supply chain management at the strategic level is to enable them to contribute to the company’s strategy. Furthermore, in order to achieve a very minimum requirement, supply chains also have a role in creating the best job strategies, especially those that reduce costs. One of these strategies that have proven to be the great results is the resource strategy, especially the global sourcing strategy.
What is global sourcing?
This is one of the popular sourcing strategies as the buyer seeks to identify the most cost-effective source of supply internationally. The main goal of this kind of strategy is to take advantage of commercial efficiencies that may be found all across the world. These competencies include low material costs, cheap labor, advanced technology, favorable tax policies, and many more. Competencies increase profitability and lower production costs.
What is required to get involved in global sources?
Here are some critical success factors for global procurement sourcing:
All countries have different rules and regulations of government. Also, It is crucial to be aware of the trade regulations that govern your country, the country you intend to source your products and services, in addition to any international law that may enter into force.
2. Global sourcing skills
In addition to the general knowledge of procurement, the team will be needed to have skills in international trade. There are a plethora of terms that can negatively impact a resource strategy if they’re not taken care of; for instance, you must be quite familiar with Incoterms to use them for cost-effectiveness.
Different global sources call for the digitization of the purchase. That’ll make the whole purchase-to-payment process pretty easier, faster and much more efficient. Over time, you may need to integrate your systems with the trusted reseller systems in order to enhance real-time information sharing. Systems and applications such as ERP will also enable this integration. This needs identifying a resource that is equally intelligent in the online world.
Why should you engage in global sourcing?
There is a whole world of difference between globally exporting entities and those that have confined themselves to the domestic suppliers. Some of the advantages comprise:
1. Improve technical capabilities.
Executing business with a technologically advanced resource will put you in a better position to build your capacity. For instance, if you place a clause in the contract regarding the knowledge transfer. It means that suppliers will be obligated so as to transfer some production or operating skills to your firm before the end of the contract. In the near future, your company must be capable of creating and operating within the company, without necessarily involving the seller.
2. Access to goods/services not available locally
Thanks to the global sources, your firm can access goods/ services not available locally. For instance, firms that assemble cars in countries like Kenya can get parts in Germany, Japan, and similar other countries and then assemble them locally. This not only facilitates work effectively but also creates local jobs from projects that would have been impossible without the global sourcing. In the meantime, new markets are being created for the supplier countries.
3. Low cost of doing business
Domestic suppliers are made to compete with other suppliers all across the world. This competition also reduces labor costs, material costs, and all other factors. In the end, the company’s profitability improves.
4. Quality improvement
This can be attributed to 2 factors; first, you are a source of the best supplier in this world, with the best technology. It guarantees you the optimum quality. Second, in order for farmers to be competitive, these farmers must provide the best quality at the best price.