We are living in a digital age where connectivity with global suppliers has become much easier than before. Therefore, businesses all over the world have started taking benefits of this new technology.
Today’s purchasing managers of various companies have a totally new role to play while they try to source different materials needed for the business. Although global sourcing solutions offer several benefits, at the same time, they provide a new set of challenges as well.
So, let us discuss in this article the challenges of global sourcing and how you can resolve them by using new innovative solutions that are emerging due to new technology. We will also cover the benefits that global sourcing can offer to businesses.
What is global sourcing?
Let us first try to understand what global sourcing solutions mean. It is a process through which a purchase manager can source different types of raw materials, products or services needed for the business from anywhere in the world. This way, a business can develop new sources to obtain their materials for the business and get competitive benefits.
These days, many new technologies are available. As a result, global sourcing has become easier and affordable, and it helps businesses to create multiple sources for their needs.
What are the benefits of global sourcing?
Let us first discuss what benefits businesses can obtain through global sourcing solutions before we discuss about new challenges.
1. Cost savings - The first benefit is, a business can get substantial cost benefits by sourcing from some other country where the goods are available in abundance at a very low price. There are several countries in the Far East where materials and labour are very cheap. As a result, they can offer their goods at a meagre price.
2. Access to new markets and suppliers - Technology offers an opportunity to explore new suppliers and new markets existing in a different country. As a result, businesses can develop many new alternates to source their supply.
3. Opportunities for innovation - By working with suppliers from different countries, businesses can get new ideas and techniques, making them more competitive in the market.
4. Diversification and risk mitigation - By exploring markets globally, it is possible for any business to diversify its supplier base. This will offer them several alternatives to source any required material needed for the business. In case any supplier fails to deliver any item as needed by the business, they can approach an alternate new supplier who may have ready stock.
5. Market expansion - Global supply can offer an opportunity to most businesses these days to expand their own market to different countries. When they remain in touch with the suppliers of different countries, they can also get to know what opportunities exist in that country for their own product.
6. Competitive advantage - Any business that attempts to explore the global market for sourcing can always exploit the competitive pricing, better product quality and more varieties of products, and will naturally be more competitive in their business. As a result, businesses can offer better products to their customers at lower prices.
Challenges of global sourcing and their solutions
We have just gone through various benefits of global sourcing, but that does not mean that it is a very easy solution. The global solution offers several challenges to a purchase manager, as dealing with suppliers from different parts of the globe can be more challenging and demanding. Besides, geopolitical situations can often disturb the supply chain. Let us discuss them in brief detail here.
1. Legal and regulatory issues
Whenever you try to import from a different country, you must know the following:
- Their export rules and regulations.
- Which items are banned in your country.
- What restrictions are imposed in importing.
- Custom rules of your countries.
You may need to be well aware of these rules and regulations to source your item in your country.
2. Currency and exchange rate fluctuations
When sourcing from different countries, you must also be aware of their currency value against your country. This may often fluctuate due to several reasons, and as a result, the price of the product that you are importing from there may vary.
Therefore, you need to regularly monitor this fluctuation and calculate the loss or gain for you as a result. You may also enter an agreement with the supplier by using:
- Forward contract
- Hedging strategy.
3. Political and economic instability
There can always be a change in regime in another country, including your own country, and as a result, the political equations between the countries may often drastically change. Sometimes, it becomes too difficult to do any business with that country.
It is, therefore, important to keep yourself updated with the economic and political situation of the country with whom you want to deal. You may change your strategy based on the current situation of that country.
4. Language and cultural barriers
Different countries have different languages and business cultures while dealing with other countries, you have to understand this. Although most of the country conducts their business in English, however, in many countries, only a few people understand this language.
Besides, the accent and the way people from different countries speak English can often create confusion. China is a typical example, where business culture is quite different from Western countries. To mitigate this language and cultural barrier, you can take the following steps:
a. Foster cross-cultural understanding: These days, one can learn any foreign language with proper education and training. You can hire staff in your company who have training and skills in that language and can help you interact with people from such countries. Also, try to be aware of their culture. This will surely help you negotiate better.
b. Establish clear communication protocols: It is important to create certain etiquettes while discussing with any global suppliers. You may need to create a very special documentation for this.
5. Supply chain disruptions
We have already talked about geopolitical situations before, which can often be responsible for supply disruption. In addition to that, there can be many other reasons that can cause a delay in your supply. Some of them are:
- Natural disaster
- Political turmoil
- Riots
- War
- Any other unforeseen event.
The following are a few global sourcing solutions you can do to mitigate such risks:
a. Implement advanced technologies:
These days few new technologies are available such as:
- Enterprise Resource Planning (ERP) systems.
- Supply Chain Management (SCM) software.
- Internet of Things (IoT) sensors.
These days, most businesses around the world are trying to use all the above tools effectively and are quite successful in mitigating such risks. This will help you to know the situations on a real-time basis to know the following information:
- Current inventory levels
- Shipment status
- Supplier performance.
b. Build strong supplier relationships
It is very important to develop very good relationships with your suppliers, and by doing this, they can either offer you an advanced intimation or suggest you a few ways to solve your problem. After all, every business wants its business to grow.
c. Utilize data analytics
These days, there are technological solutions also available that can help you foresee any possible problem well in advance so that you can remain proactive.
6. Quality control
Quality is another major issue that you need to manage while sourcing from any other country. That is because every country has its own standards of quality, which may be different from those of your country. You can take the following actions to maintain quality.
a. Establish clear quality standards: Whenever you are sourcing your goods from any other country, it is important that you clearly specify your requirements by creating a specification sheet. Make sure that both you and the supplier have the same understanding of your requirements.
b. Develop supplier audits and inspections: It is important to do quality audits of your supplier’s goods on a regular basis, and you must also implement a regular incoming inspection procedure.
c. Implement Quality Management Systems: While selecting your supplier, you must find out what Quality Management system they follow. If they have ISO-9001 certification, then you can trust them.
7. Logistics and transportation
While importing from certain different countries, there can be several challenges in transporting the logistics, which may create the following issues:
- Shipping delays
- Customs clearance issues
- Transportation costs.
To meet these challenges, you may take the following few steps:
a. Optimize logistics processes: You can improve your logistic movement by following proper practices for inventory management, selecting proper transportation routes and using modern software for logistic handling.
b. Partner with reliable logistics providers: You can research and find the best international carrier that can also allow you to track your logistics, clear customs efficiently, and offer timely delivery.
c. Plan for contingencies: It is also useful to create a contingency plan by keeping a backup supplier.
The future of global sourcing
A number of significant trends and developments that represent the shifting dynamics of the global business environment will influence the direction of global sourcing in the future. In order to prosper in this dynamic environment, companies need to adopt these new approaches and methods. An overview of global sourcing's future can be seen here:
1. Digital transformation
The global sourcing practices of corporations are being revolutionized by digital transformation. E-commerce and online platforms have simplified the process for businesses to find and work with suppliers throughout the globe.
Digital tool use is becoming more and more important for supply chain management, communication, and procurement. Global sourcing processes are becoming increasingly transparent and efficient thanks to advancements in
- Data analytics
- Artificial intelligence
- Cloud-based procurement technologies.
2. Sustainability and ethical sourcing
These days, every country in the world is highly concerned about environmental protection. As a result, in the coming days, most sourcing countries would like to ensure that the goods they import are environmentally sustainable.
These rules are going to be more stringent in the near future as every country wants to maintain their environment sustainable. Only eco-friendly items will be allowed to be imported.
Reducing waste, upholding moral labour practices, and lessening the environmental effect of procurement procedures are all included in sustainable sourcing. Embracing sustainability has evolved from a passing fad to a critical element of corporate responsibility, making it a strategic requirement for the future of global sourcing.
3. Nearshoring and reshoring trends
While remote suppliers are often integral to global sourcing, nearshoring and reshoring are gaining popularity. For certain organizations, moving production or service operations closer to home can lower transportation costs and improve supply chain resilience.
While nearshoring refers to sourcing from adjacent countries or regions, reshoring entails returning products or services to the original country. These trends underscore the growing importance of supply chain agility and effective risk management.
4. Building supply chain resilience
The recent global pandemic that the whole world suffered during the COVID-19 period has been an eye-opener. This has prompted many businesses to relook at their infrastructure and systems.
To improve their robustness, companies are adopting strategies such as to improve their robustness, companies are adopting strategies such as
- Dual sourcing
- Securing the same component from multiple vendors.
- Maintaining safety stock.
- Developing backup plans for potential disruptions.
Protecting profits and overall business performance requires incorporating global sourcing and procurement into a company's business plan. Trade can greatly impact things like El Niño's aftereffects and Red Sea interruptions that raise shipping prices and cause delays in order fulfilment.
Reviewing and updating your strategic sourcing plan on a regular basis is essential to preserving effectiveness in the face of changing supply chain risks.
Conclusion
Although when you prefer to opt for global sourcing solutions, there are surely many significant advantages for multinational companies, it also brings challenges that require careful planning and expert execution. By addressing these challenges with strategic approaches, organizations can optimize their global procurement processes and secure a competitive advantage in the market.
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