Question 1. What Is Global Sourcing?
Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service.
Question 2. What Are The Advantages Of Global Sourcing?
Advantages of Global Sourcing: The global sourcing has following advantages:
- Low cost manufacturing
- Tapping skills and resources that are not available in the home nation
- Seeking the benefit of alternate suppliers
- Utilizing an efficient supply chain management systems
- Learning global business skills
- Meeting competition prudently and efficiently
Disadvantages of Global Sourcing: Disadvantages of global sourcing are as follows:
- No exposure of international culture, traditions and beliefs
- Hidden costs related to different time zones and languages
- Financial and political risks associated with emerging economies
- Risk of losing intellectual properties, patents and copyrights
- Long lead times
- Labor problems and labor related issues
- Unnecessary shutdowns and supply interruptions
- Difficulty in supervision
- Difficulty of monitoring goods and services quality
Question 3. Explain About International Procurement Organizations?
International Procurement Organizations (IPOs):
Due to the complexities of global sourcing, IPOs are doing wonderful jobs to remove the discrepancies that have crept in the global sourcing system. The IPOs 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 China, which has a large range of sub-markets for raw materials and finished goods and suppliers that span the whole value chain of goods and services, such IPOs’ role proved to be very vital. They provide all relevant and essential up to date on ground information. In the years to come, these IPOs may grow up to giant procurement agencies with whole range of buying and category formats.
Question 4. How Large Must A Company Be To Benefit From Global Sourcing?
Size is really not the determining factor when it comes to evaluating the benefits of sourcing.
Much of the decision depends on the type of product, part or component involved and the level of precision required. Assembly and packaging requirements must also be analyzed carefully.
Question 5. Will Sourcing Help Manufacturing Costs To Continue Declining Over Time?
Even though Pentasource works extremely hard to establish long-term supplier relationships, market forces require that we monitor performance and take advantage of every cost saving opportunity available. This is just one part of our commitment to continuous improvement.
Question 6. How Are Rising Labour And Material Costs Impacting Global Sourcing?
Increasing costs of fuel and raw materials are fueling inflation for all major economies, including the U.S. and China. Quality output can only be maintained when good working relationships and local oversight of labor and material costs by your sourcing partner are in place.
Question 7. What Insurance And Risk Management Issues Are Associated With Global Sourcing?
Product liability, safety and loss control and claims management factors are really no different than those impacting manufacturers here in the U.S. Pentasource will, however, help you ask the right questions of your current insurance providers so that any required coverage, such as cargo and ocean marine, travel, international medical or expatriate programs are in place.
Question 8. What Government Regulations Impact A Global Sourcing Arrangement?
While product design requirements are always a concern, a successful global supply chain will always be subject to freight issues, politics, currency exchange rates and emerging technologies. Customs clearance can require some complex coordination as well.
Question 9. How Do We Make Sure We Receive The Service We Need After The Sale?
Our commitment to your organization does not end when an alliance partner is selected. Rather, Pentasource meets the long term strategic initiatives of its clients by finding the people and facilities best suited to their needs and then staying involved to monitor the continuous improvement process.
Question 10. How Do We Manage Freight Costs?
Freight costs can be leveraged through volume just like manufacturing costs. Pentasource helps clients negotiate freight charges from a position of strength using volume and long standing relationships in the shipping and transportation industry.
Question 11. What Are The Stages Of A Global Sourcing Strategy?
Stages of a Global Sourcing Strategy
Stage 1: Preliminary Research – Investigation and Tendering : At this stage, the enterprise identifies the core and non-core operational activities, analyzes customer and market requirements and identifies competitors. The idea is to develop the firm’s business objectives, prospective markets and brand positioning.
The strategic sourcing scope is also outlined through a business plan developed by the executive and the sourcing specialist, and the preliminary work strategy and baseline for measuring performance is established and documented as a procurement process plan.
Stage 2: Market and Supplier Evaluation : At this stage, the enterprise develops a detailed list of supplier selection benchmarks, which is used to select the most appropriate suppliers that fit the requirements. Based on the findings of the process, the sourcing strategy may be tweaked further and a final costing model is released. The operational and economic benefits of the project will then be estimated. RFIs will then be sent out to the shortlisted suppliers.
Stage 3: Selection of the Supplier (Sourcing Event) : Based on the results of the RFI dispatch, a final list of suppliers is selected and negotiation for products is carried out, culminating in a supply agreement. Technical assessment of final supply candidates is conducted to come up with the savings estimates for each. Finally, an implementation schedule outlining timelines for various suppliers is developed.
Stage 4: Implementation : A performance analysis schedule should be developed, outlining all activities in the implementation process. The implementation team should be constituted by the procurement agent and the schedule and strategy should be published. Agreements related to shared supply, resources and logistical arrangements are developed.
At this stage, expected internal and external results from the suppliers should be documented. Periodic measurement and reporting of actual performance should be carried out.
Stage 5: Performance Monitoring : Performance of suppliers is measured, both independently and in relation to the resources and processes applied by supply partners. This should be carried out routinely and reported accordingly. In-depth evaluation of the efficacy of collaborative efforts with each supplier is obtained, and the partners involved continuously isolate problems and find out ways these can be solved for improved performance.
Question 12. What Are The Managerial Issues Associated With Global Sourcing?
Managerial Issues Associated With Global Sourcing:
Buying merchandise from overseas may be cheaper than from vendors located locally. Vendors that are in foreign country is where majority of the retailers get their merchandise and make a huge profit globally.
Following are the managerial issues associated with global sourcing:
- Quality Control: It will take long time for merchandise from outside the country to reach to your store, keep in mind that shipping/air time while sourcing globally. These problems are more common in countries that are under developed or have no bilateral trade with your nation. Therefore, limited/no trade details regarding a country’s vendors are available.It can have following consequences:
- What will happen if the merchandise delivery is delayed?
- What will happen if the merchandise is of poor quality?
- What will happen if the merchandise is of superior quality but packaging, transport conditions are substandard?
Consequently, it becomes imperative on the part of retailers to assure the quality of imported goods through insurance, agreement with vendor or otherwise.
- Building relationships with vendors: 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.
Question 13. What Are The Problems Related To Global Sourcing?
Problems Related to Global Sourcing:
- Language barrier
- Cultural difference
- Climate/time difference
- Distance issue
Therefore, considering the complexities of global sourcing, retailers should try to remove these obstacles and work for building long-lasting relationships. The key to build solid relationships with overseas suppliers is to maintain trust with suppliers.
Question 14. What Are The Costs Associated With Global Sourcing?
Costs Associated with Global Sourcing:
It is said that East or West, home is the best. No one is ready to leave his own country but if somebody does, the reason is domestic compulsion. There are some factors that force a retailer to buy merchandise from abroad. Buying merchandise from abroad is full of complexities. Retailers take sourcing decisions due to cost saving and improved quality, but this exercise is not at all simple. A retailer while taking global sourcing decision must consider following costs that have impact on firm’s overall profitability.
Country’s Origin: The country’s origin has a lot of impact on the sourcing decisions. Buying a handicam from Japan (a developed nation) and from China, India, Korea (developing nations) makes a difference in cost. Japan, USA are famous for producing latest and high quality goods resulting in high cost, while developing nations due to cheap manpower and other benefits of economies of scale produce the same thing relatively in cost effective manner. Further, some countries are technologically advance and therefore, may provide high quality goods in relatively less cost.
Therefore, a retailer must consider following issues:
- Technological advancement
- R&D difficulties
- Distribution and logistics network
- Country’s specific richness
- Saving associated with buying from a particular country.
Import Duty: Import duty (commonly known as tariff) is a tax imposed by a government on imported goods. Tariff raises the cost of imported goods. Government imposes such taxes to protect the interest of domestic manufacturers and traders. In absence of import duty, India will be dumped with cheap goods (low cost goods) demolishing the Indian business. Therefore, a retailer before entering into international sourcing agreements must check the rate of import duty on particular merchandise in question.
Foreign Currency Risk: In recent days, currency fluctuations have become significant consideration while making global sourcing decisions. Currency risk arises due to change in price of one country with respect to another. For example, you are an Indian retailer and you buy merchandise from USA, as usual there exist time gap between placing the order and paying for the supplies, and now while making the payment in dollars, you have to pay more (because dollar is stronger than rupee in international market) and also there is a possibility that you would realize that no gain from merchandise buying.
Trade Blocks: Trade blocks like FTZs (Free Trade Zones), SEZs (Special Economic Zones), EOUs (Export Oriented Units) are some designated areas in a country that don’t come under country’s applicable tariffs. Like Free Trade Zone is an area within a country where no taxes are applicable with regard to storage, inspection, packaging, assembly, fabrication or exhibition.
Therefore, a retailer while searching for foreign vendors should consider these trade blocks. Also Indian retailers should develop relations with global vendors belonging to these designated areas.
Merchandise Carrying Cost: The cost of maintaining inventory in a retailer’s warehouse like rent, electricity expense, insurance and employees’ expenses is known as merchandise carrying cost. In another words, this is basically the cost of holding merchandise in stock.
Carrying Cost = Average Inventory at Cost X Opportunity Cost of Capital
Opportunity Cost of Capital: It is the rate of return that could be earned by investing in the next best possible option. It is the expected return foregone by using capital for other purpose.
Logistics Expense: It basically includes transportation cost occurred on merchandise travelling. Higher the distance from vendor, higher will be the transportation expense. For example, buying merchandise from China is significantly lower than the cost from New York to India.
Question 15. How To Make Global Sourcing Work?
Here’s a five-point strategy for making your first global sourcing foray successful.
- Source to a country with low labor costs and good quality control.
- Source to a country where you can take a plane ride with comfort and ease.
- Source to a country where you can understand the language.
- Source to a country where you can respect and abide by the laws.
- Source to a country where you can trust the people you do business with.
Question 16. What Are The Organizational And Behavioral Issues?
Organizational and Behavioral Issues:
- Firms can run into problems when global sourcing is introduced into their organizations.
- The resistance of the firm’s buyers to learn to evaluate global sources is the reason for most of the problems. An attitude of “if it can’ be bought here in the U.S.A., it can’t be bought anywhere” can be seen with some purchasing departments.
- Many buyers simply do not want to learn about the other countries with whom they will be dealing.
- There are many ethical considerations that you must learn in order to be successful. Many companies hire brokers to do their sourcing.
- Lead times and delivery times can create problems also. Longer times can increase inventory needs and drive up carrying costs.
- The extended lead time also might push back the date at which a firm is able to introduce new products to the market.
Question 17. What Are The Global Sourcing Issues?
Global Sourcing Issues :
- A third problem companies face in global sourcing is communication. Many times there are delays and confusion in translations.
- Sending documents via couriers or the postal service is often time consuming and creates problems of obsolescence, more confusion, and late or even lost deliveries.
- There has been an increase in the use of the Internet to eliminate the time delay and confusion.
- Global sourcing is the trend of the future.
- Supply management is becoming very important to the survival of both American and offshore firms.
- In certain industries, using foreign suppliers can reduce total costs.
- Firms in the apparel and electronics industries that do not use global sourcing could find themselves out of business when competing with firms that source globally.
- Global sourcing is by no way expanded to completely replace domestic sources; however, it is a way to meet a competitor’s challenge and achieve better value for goods all over the world.
Question 18. Explain Global Sourcing As A Strategic Sourcing Option?
Global Sourcing as a Strategic Sourcing Option :
Global sourcing is extremely complicated from a quantitative and qualitative viewpoint. The total cost of sourcing is perhaps the most important variable.
Of course, the costs vary from firm to firm since the appropriate qualitative components of offshore sourcing must be considered.
Question 19. Explain Global Sourcing Of Manufactured Goods?
Many variables come into play when sourcing manufactured goods or component parts from another country. The supply chain is long and fragmented and the main challenges are long lead times, the risk of disruptions in transportation and the difficulty of ensuring the specified product quality.
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