Global product sourcing basically is known as procurement strategy with the help of which enterprise can identify the most cost-effective and suitable location for the manufacturing of the product. It does not matter even if the location is in a foreign country.
For example, it is easy for the cement manufacturing company to find the cost of raw material and to find some foreign countries which are cheaper in manufacturing because the manpower is cheaper there. The company would, therefore, opt to shut down its domestic operations and set up a plant in that foreign country.
The general sourcing process can be divided into the following 5 stages, as explained below.
Stage 1: Preliminary Research – Investigation and Tendering
In this stage, the core and non-core operational activities are identify by the enterprise. Apart from this, the enterprise analyzes customer and market requirements as well as determine competitors properly. The idea behind this is to develop the firm’s business objectives, prospective markets, and brand positioning.
The strategic sourcing scope is also defined with the help of a business plan which is developed by the executive and sourcing specialist, apart from this, preliminary work strategy as well as strategy and baseline in order to measure the performance is established and documented as a procurement process plan.
Stage 2: Market and Supplier Evaluation
At this stage, the detail x list of supplier selection benchmarks is being develop by the enterprise which helps to select the most appropriate suppliers that can fulfil the requirements. The sourcing strategy may change on the basis of the findings of the process. The operational and economic benefits of the project will then estimate. RFIs will then sent out to the shortliste suppliers.
Stage 3: Selection of the Supplier (Sourcing Event)
The final list of suppliers is select base on the results of the RFI dispatch. And apart from that negotiation for products is carry out culminating in a supply chain agreement. After that with the saving estimate of each candidate, the final technical assessment is conduct. Finally, an implementation schedule outlining timelines for various suppliers is develop.
Stage 4: Implementation
On the basis of the implementation process, a performance analysis schedule should develop. With the help of a procurement service provider, the implementation team should be published. Agreements related to share supply, resources and logistical arrangements are develop.
In this stage, expect internal and external results should be document from the suppliers. Periodic measurement and reporting of actual performance should be carried out.
Stage 5: Performance Monitoring
Performance of the supplier should measure individually as well as on the basis of relation to the resources and processes which is apply by supply partners. This should be verify and reported keenly. In-depth evaluation of the efficacy of collaborative efforts with each supplier is obtain, and the partners involve continuously isolate problems and find out ways these can solve for improve performance.
One of the major aims of performance monitoring is to manage the most efficient procurement process, one that is flexible and dynamic that can easily adapt in order to change the market environment.
A Good Global Sourcing Strategy Addresses
One of the major aims of the product development support strategy is to grab the benefit of lower labour cost in foreign countries. But still, you have to face additional cost but that will not affect domestic transactional costs. These consists of broker fees, freight, charges, taxes called, insurance, duties and bank fees.
Laws – the sourcing specialist together with the supplier should consider what body of law shall apply to their contractual agreement, i.e., the buyer’s country’s law, the supplier’s country’s law or the law applicable through a signed treaty between the 2 countries.
Currency- Some buyers may focus on transactions in their own currency for the sake of simplicity. But still, supplier’s currency will be consider by a prudent buyer where the buying country’s currency may become stronger in the period between agreement and supply and eventual payment.
Lead time – global purchases have a significantly longer lead time than domestic sources. The reason is that overseas travel is slower unless air travel is use. In addition, there is time take in the customs clearance process, which does not apply for domestic sources.
Culture and language – where the procurement agent is unfamiliar with the culture and language of the supplier. The risks of misunderstanding, miscommunication, and offensive/awkward encounters significantly increases.