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Business Studies Notes 3
rd.
Year
Undergraduate / Graduate Level
SUBJECT: Global
sourcing
Authors: (Original Study Notes and Lecture Notes prepared by Mr. K.P. Saluja (M.B.A. from Indian Institute of Management Ahmedabad), and by Mr. K. K. Prasad (M.B.A from IGNOU Delhi) These notes are intended to be used by undergraduate students, completing Year 3 Business Degree Courses. These notes will help undergraduates and graduates complete case studies, coursework assignments and pass exams in Business Studies and Economics.
TABLE OF CONTENTS
(1) Global sourcing definition (2) Benefits of Global Sourcing and Supply Chain Management (3) Levels of global sourcing
Global sourcing definition
Global sourcing refers to a procurement strategy that a business uses to find the most cost-effective location for manufacturing one or more of its products. For instance, if a toy manufacturer discovers that it is more cost-efficient to have its products manufactured in a foreign country because of the lower wages of employees in that country, it may shut down its factory and outsource its manufacturing to a foreign manufacturer instead. Global sourcing involves more than just searching for products globally. It is also an effort to improve certain aspects of manufacturing, such as: Supplier selection and performance Speed to market Estimation of product costs Trade compliance Auditing Global sourcing may also refer to acquiring components or raw materials that go into products from other countries, not just the country where the company
Less waste- Many overseas suppliers have become more eco-friendly and use sustainable products for shipping. At the point when you utilize worldwide sourcing in production network the board, you will connect with worldwide providers similarly as you would home grown Picture of the world for an article around 5 Advantages Global Sourcing in Supply Chain Management. Ones with regards to your sourcing steps, on the off chance that you're utilizing an e Tendering system, you would sign in, post a need, to be associated with providers in view of your need, and vet one until you see as the right one. The one thing to remember is that worldwide providers might require a more drawn out lead time for specific items, so you need to begin your obtaining cycle sooner than in the past to guarantee that the merchandise arrive at the shopper on time.
Levels of global sourcing
How does global sourcing help your company collaborate with the international supply network? It does so by following some basic sourcing standards. Discussed below are the five levels of global sourcing: Level 1: Domestic Sourcing Level 2: International Sourcing Level 3: International Procurement Level 4: Global Procurement Strategy Level 5: Global Sourcing Strategy Domestic Sourcing Domestic sourcing is the action of contracting for labor and products that are conveyed or made inside the purchaser's nation of origin borders. Domestic sourcing is becoming key to the conversation of "Purchase American" or the protectionist banter that is being talked about at the most elevated levels of
every significant country. This discussion is turning out to be especially intense with the joblessness rate in the US increasing above 8% broadly and presently affecting more middle class positions or administration industry occupations. Advantages of domestic sourcing Fast delivery Domestic sources are generally nearer to the merchant or retailer than 'imported sources'. Sources like raw materials, services or products can be conveyed in more limited timeframes contrasted with unfamiliar sources. After deals, trade or discounts of flawed items will benefit too; as it is generally simpler to speak with nearby business instead of worldwide collaborations. Further, there is additionally speedier response to crisis circumstances or quicker decision making to vulnerabilities on the lookout. Consumer confidence More limited time for transportation could guarantee that products for example, food and beverages stay new. It is genuinely demonstrated that domestic sourcing increments shopper certainty; as indicated by a report by IGD, 57% of buyer who consider purchasing nearby food since it is fresher. It might likewise impact a customer's choice with regards to various choices; with a domestic sourcing methodology, selling nearby items can assist with acquiring support from shoppers who are worried about the beginning of the product that they are purchasing for political, moral, or natural reasons. It is likewise powerful to let purchasers know that neighbourhood items are quality guaranteed; purchasing with certainty is a vital perspective for retailers to acquire trust from customers, thusly expanding brand awareness and loyalty. Cost benefit Business or retailers who have solid associations with local suppliers don't need to go through a long store network which will assist with decreasing the
Time zone advantage Firms that support domestic sourcing or manufacturing could enjoy the benefit of having the same time zone with the supplier, which means quicker respond from supplier for any enquiry or questions, sometimes a couple of minutes of delay in solving problems could cost millions for the business, it is always good to be easy to communicate supply. International Sourcing Global sourcing alludes to looking for labor and products past one's boundaries, i.e., from the global market. It is an obtainment methodology wherein organizations attempt to find the most expense productive spot internationally for manufacturing goods. As indicated by buying and acquirement experts, organizations ought to have the option to source both inside and outside their public lines. They are then along these lines better ready to contend. Most organizations pick a worldwide obtaining procedure since costs are lower abroad. Either work expenses or natural substance costs are lower. Frequently, both natural substance expenses and wages are lower. The term 'offshoring' signifies re-evaluating with an unfamiliar supplier. 'Re- evaluating' signifies cultivating out work to an outsider provider, i.e., not accomplishing the work in-house. Global sourcing – the international marketplace As demand grows internationally for better and more goods and services, competition becomes fiercer. Businesses have to keep up with the rapid pace of technology advancement. At the same time, however, they need to keep costs down and optimize quality.
Additionally, companies strive to improve customer services along the whole value chain. For most companies today, this is the reality of the international marketplace, i.e., international trade. Global sourcing – young companies Using an outsource solution is becoming increasingly common, especially for young companies. They often use IPOs as agents to source from countries with lower costs. IPO stands for International Procurement Organization. IPOs find and develop important suppliers across a wide range of sourcing categories. In fact, they can source from small and simple economies, such as Belize, to large and complex ones, like India, Brazil, or China. Global sourcing – Advantages & Disadvantages Seeking a global sourcing strategy has many benefits. However, as is the case with most business strategies, there are also disadvantages. Advantages You can learn how to succeed in a new market. Your company may find new business contacts, and maybe even new customers, abroad. If you find a new and cheaper supplier, you can compete against your rivals more effectively. Finding new suppliers mean you become less reliant on just one or two. You may be better able to increase your company’s technical capabilities by doing business abroad. There might also be an opportunity to increase manufacturing capacity. Disadvantages
2. Timing. Domestic procurement is typically done within the country where the purchase is being made, while international procurement can occur across several countries. This can be useful if you want to buy supplies from a supplier in Europe but need them quickly, for example. 3. Regulation and Standards. International procurement is often subject to different regulations and standards than domestic procurement, which can make it harder to win a contract. For example, some countries require contractors to have local licenses, while others may not allow foreign companies to bid on government contracts. Benefits of International Procurement International procurement is the obtainment of goods and services by organizations that are not situated inside the country in which the buy is being made. This sort of obtainment permits organizations to set aside cash since they are not restricted by duties, charges, and different guidelines that might apply inside their own boundaries. Furthermore, international procurement can permit organizations to gain items or administrations from providers who might have a superior comprehension of their necessities and can give them at a lower cost than privately obtained products or services. The main benefits of international procurement include:
- Saving money on purchases due to lack of restrictions on tariffs and taxes
- Possibility to purchase products or services from suppliers who may be better suited for your specific needs
- Increased access to unique talent and resources outside of your local market Methods of International Procurement There is a great deal of disarray around the expression “international procurement.” It very well may be difficult to tell what it means and why it's
significant. In this article, we will assist with explaining the rudiments of international procurement and why it's so significant. To begin with, how about we start by characterizing what international procurement is. Basically, international procurement alludes to purchasing labor and products from beyond your nation of beginning. This can remember buying labor and products from different nations for the European Association (EU), North America, Asia Pacific area, Africa, South America, or some other region of the planet. Global Procurement Strategy Stage 1: Preliminary Research – Investigation and Tendering At this stage, the enterprise identifies the core and non-core operational activities, analyses 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.
include 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 be applied 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 insist on transactions in their own currency for the sake of simplicity. However, a prudent buyer will consider the possibility of using the supplier’s currency 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 used. In addition, there is time taken in the custom 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. Transportation – whereas domestic sourcing necessitates the use of a single mode of transportation, global sourcing frequently includes multiple modes of transport, e.g., combining air or water transportation with road transport to bring goods from the supplier to the supplier’s port, to your own port and finally to your place of business. Methods of payment – in global sourcing, a letter of credit is used for payment, which necessitates the cooperation of the banks of the supplier and buyer. Stages of a Global Sourcing Strategy
Global product sourcing alludes to an acquirement system through which an endeavour attempts to distinguish the most financially savvy area for product manufacturing regardless of whether that area might be in an outside country. Steps for building a global sourcing process Build a team More and more companies are taking the team approach to making sourcing decisions. Create a cross-functional team of professionals from sourcing, operations, finance and other stakeholders directly involved with the product under development. Designate a team lead. Include subject matter experts if necessary. Conduct market research on suppliers The point of performing market research is to assess market conditions and the ability of current or potential suppliers to deliver product under those conditions. Mascaritolo calls supplier market intelligence one of the “most important and critical stepping stones for an effective category strategy.” Strategic development Now that you have a grasp of your data — forecasted spend; supplier market research; business activity; user requirements — it’s time to create a Supplier Evaluation Scorecard. Competitive bidding process negotiation and contracts It’s time to implement your strategy by putting the project out to bid. There are three different types of bids that can occur, a Request for Information (RFI), a Request for Pricing (RFP) and a Request for Quote (RFQ).
Below are our company's definitions of critical and non-critical material. Your company may use slightly different parameters. Critical material - component or material failure endangers safety or survivability of personnel, or has (1) high complexity, (2) tight specifications, (3) is a medical device, (4) has other business considerations. Visit every year or every two years based on criteria. Non-critical material - all others. Visit every three or five years based on criteria. Your Supplier Evaluation Scorecard is the most important tool for monitoring supplier performance. Your scorecard will include categories for: Price Quality Delivery Reliability But other categories may be added as needed (see point #3 above). These scorecards are for your use, but also for the supplier to track areas that require remediation.
References
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