Considering common reports — at a minimum — of prices 10 percent to 35 percent to 50 percent lower than domestic sources, as well as the only-fractional added costs in building a global supply chain, it is no wonder that global sourcing has become so highly attractive.

Yet mid-market firms only now are waking to the reality of global sourcing they face. Such sourcing allows firms to improve their financial position via cost savings that contribute directly to the bottom line. A further benefit of global sourcing is the advantage it provides companies for beating competition: enabling adopters to source a wide range of products from a bevy of suppliers greatly increases the portfolio of product offerings.

As global trade increasingly expands without an end in sight, it is only a matter of time before global sourcing impacts all industries, notes a recent article from Supply & Demand Chain Executive, and "the supply chain will never be quite the same again."

"The benefits that can be gained from global sourcing are real, and understanding the competitive impact of pursuing or not pursuing global sourcing is critical," says Gartner research VP Helen Huntley. "However, the potential advantages of global sourcing won't materialize [sic.] overnight or without work."

As such, here we provide an introduction of five phases of the global sourcing process, as well as some basic pointers, courtesy of Supply & Demand Chain Executive.

1. Strategy & Assessment
There are many ways to develop a global sourcing strategy. Global sourcing remains broad and complex, with many different vendors bringing different strengths to the table. For a U.S. company to adopt global sourcing effectively, it first must identify why it wants to adopt. Strategy must be well defined, as different approaches are required based on different goals: cost reduction, faster speed-to-market with products, competition differentiation, supply-source consolidation or product-portfolio increase, et al.

Process and change management are critical. It is important to win the support of any functions that may be involved or impacted, including engineering, quality, marketing, HR and finance.

The defined strategy MUST be flexible, and it is imperative that contingency plans are in place to cope with anomalies or failures in performance.

Companies also must be aware of, and comply with, specific legislation that may impact strategy (e.g., the U.S. Customs & Border Protection, Customs Trade Partnership Against Terrorism and the Fair Labor Standards Act).

After defining the global sourcing strategy, one must scope the necessary resources: "positive, proactive and structured planning will be key to success," says Supply & Demand Chain Executive. Evaluating the company's preparedness for adopting this new strategy is vital.

Lacking a predefined objective and strategy when moving into global sourcing can bring a company to its knees.

2. Start-Up
Once the potential adopter has comprehensively defined, assessed and accepted its global sourcing strategy, it is time to implement. During this start-up phase, according to Supply & Demand Chain Executive, it is essential to adopt a strategy that "covers both near- and mid-term plans, leverages existing supplier relationships; allows process and change management to be handled in a structured way, and gently eases the business into the new global sourcing strategy so that benefits can be appreciated from an early stage."

Resourcing both corporate home-based and overseas sourcing office teams with appropriate skill sets is paramount.

Says Supply & Demand-Chain Executive:

Local staff can make a significant contribution to the entire enterprise by providing cultural understanding and knowledge of local supply markets. These will be the people responsible for purchasing and moving the sourced products. However, recruitment can be a lengthy and difficult process, as fluent English-speaking staff is hard to find. Even harder to recruit are very senior individuals who are much in demand from other companies. In addition, the complexities related to training staff in a new culture must be addressed.

3. Formalization
The many variables that accompany global sourcing decisions demand a data-collection and analytics approach different from that during the start-up phase. A robust and scalable global sourcing solution enables greater flexibility now and in the future, specifically regarding dynamic evaluation of sourcing options.

Prerequisites of a global sourcing solution include the following:

• It must be proven successful by similar-sized organizations for similar operations;
• It must be flexible to cope with the ever-changing global sourcing marketplace and processes; and
• It must be capable of evolving as the business itself evolves.

Such a system should also provide meaningful, up-to-date reports for analyzing the benefits and pitfalls of global sourcing.

4. Scaling
Now it time to "ramp up operations and reap even greater benefits."

A first step is to extend the proven global sourcing solution to more suppliers. This makes clearer their role and reinforces the trading relationship. It is also a good idea to leverage any particular successes with certain buyers, categories of product or suppliers. Consider doing the following:

• Increasing volume of products you buy from these suppliers;
• Buying new products from them for existing customers; or
• Using reliable suppliers, breaking into new markets with new or existing products.

It may also be appropriate to set up strategic alliances with companies similar to your own, in order to source greater volumes of products or maybe even altogether different products. Strategic alliances can bring greater buying power with shared costs and reduced risk.

5. Expansion
The marketplace is dynamic, so tying your company to one region ultimately could be detrimental to operations.

The most obvious way to expand is to source from other countries or continents. Today's hot areas include China, South America and Eastern Europe (Generally, it is accepted that these areas will remain good sources for the next 10-15 years.). When evaluating other countries, however, consider geopolitical issues, currency fluctuations and economic growth potential. There is a great variation in infrastructure, local laws, customs and attitudes toward business from country to country. Each country has its own set of business practices, cultural issues, legal requirements, and political, environmental and infrastructure risks.

Be aware of and understand such issues. Do your research.

After you implement and expand, regularly evaluate your global sourcing strategy, processes and systems. While it is wise to maintain a coordinated strategy and a consistent approach, understand that things change; as they do, so should your sourcing strategy.

To remain competitive, all companies should seriously consider global sourcing. Overseas suppliers, global logistics and telecom infrastructures have become more sophisticated and continue to improve. And developing and supporting a global sourcing strategy can bring enhanced capabilities, streamlined projects and greater control of your organization's destiny.

Source

Making Global Sourcing Work
by Jeremy Sacker
Supply & Demand Chain Executive, Jan. 16, 2006

References

Organizations Drive Global Sourcing Through Collaboration
by Michael Kogon
TechLINKS, April 3, 2006

Gartner kicks off Day One of the Outsourcing and IT Services Summit
CRM Today, April 14, 2006