Global Sourcing is a procurement strategy used by businesses wherein they source goods and services from global markets in order to achieve the highest possible levels of efficiency. The ultimate goal is to reduce the manufacturing costs significantly while maintaining the required quality standards. Basically, businesses identify the most effective location for manufacturing, even if the location is across international borders. China has emerged as the world’s global sourcing hub because of lower manufacturing costs and higher economies of scale. A company would rather have the product manufactured in China than set up an entire plant in their own country or operate their existing plant at a much higher cost.

When formulating a global sourcing strategy, there are key elements that must be taken into account. These include:

• Cost is the biggest reason why a business considers global sourcing. While manufacturing costs may be lower in another country, but your strategy must also address other costs such as freight, taxes, insurance, sourcing agent fees, duties and others.
• Time is another factor that is very important. Lead times in global sourcing are much longer than domestic sourcing.
• It is necessary to take into account the legalities surrounding global sourcing. Each country has different laws and laws of one country may not be applicable in another country. So, when businesses in two different countries get into a contractual agreement, a lot of legal aspects will have to be addressed.
• Currency is another critical factor. It must be decided whether the payment will be made in the buyer’s currency or seller’s currency.
• When you are souring from another country such as China, you will face language and cultural differences. So, there is a lot of scope for misunderstanding unless there is a native professional working for you
• Global sourcing may require different modes of transportation such as water, sea and road, or a combination of these to ensure the goods reach the buyer in time and in right condition. Your global souring strategy should address transportation as well.

Any business owner or project manager looking to outsource their new product development or manufacturing to China or any other country should try and understand the global sourcing process thoroughly and steps involved. The global sourcing process can be divided into the following steps:

The preliminary research involves analysis of the customer and market requirements. At this stage, business objectives much be identified and brand positioning developed. The firm, with the help of their sourcing specialist or project manager should outline a sourcing plan and develop a baseline for performance management.

At this stage, the sourcing manager would identify criteria for vendor evaluation, which will help identify the right supplier that meets all requirements. If required, sourcing strategy might be tweaked a bit at this stage. The final costing model may also be prepared and the overall economic benefits if the project may be calculated. 

Once the results of Request for Information (RFI) are received, the sourcing manager would finalize the suppliers and conduct negotiations. Then, a supply agreement is signed and an implementation schedule is developed. It elaborates timelines for the supplier/suppliers.

This stage involves elaborating all activities of the implementation process and the schedule is finalized. Supply and logistical agreements are developed. The project manager would also document expected results from the supplier. The results are then periodically assessed against established parameters.

This is a very important step wherein the performance of the suppliers is measured. This is done periodically and performance reports are generated and shared accordingly. Problems, if any, are identified and both partners work together to improve performance.

Businesses looking to develop an efficient global sourcing process, need to engage services of professional global sourcing managers. Get in touch with our team to discuss your project and we will help you create a flexible and dynamic global sourcing process.

We understand that successful global sourcing projects cannot accomplished without local support. We act as an extension of your team to work on-the-ground for you. Having spent years in the Chinese global sourcing landscape, we can offer our expertise to make your global sourcing project a success.