Making Global Sourcing Work

The five phases of global sourcing that, if followed, allow an organization to implement a successful global sourcing strategy in the short-, medium- and long-term.


The five phases of global sourcing that, if followed, allow an organization to implement a successful global sourcing strategy in the short-, medium- and long-term.

In today's world, customers have come to expect higher-quality goods but at lower costs year-in and year-out. If retailers are to meet these expectations, they must secure good quality and reliable sources of supply at competitive prices. As a result, the value proposition for global sourcing has never been stronger.

Leading analysts agree that such strategic sourcing offers the greatest opportunity for cutting procurement costs. For early adopters, the benefits can be very lucrative: Reports at a minimum of prices 10 percent to 50 percent lower than domestic sources are not uncommon. Obviously there are added costs involved in building a global supply chain, but these are a fraction of the savings that can be gained by moving to low-cost economies. Global sourcing is thus highly attractive to CEOs and chief financial officers (CFOs) as it allows companies to improve their financial position through cost savings that contribute directly to the bottom line.

A secondary, but equally important, benefit of global sourcing is that it helps to beat the competition. The ability to source a great range of products from a wealth of suppliers significantly increases the product portfolio offering and can even allow a company to change the entire dynamic of an industry. One example of this is the DVD player. Holiday 2003 in the United States will forever be remembered in the consumer electronics industry as the time when a clutch of very major retailers marketed DVD players for $19.99 to $29.99. Consumers bought the players faster than anyone expected, and the rapid commoditization of electronics was born.

Global trade is expanding at an ever-increasing rate with no real end in sight. According to the US Department of Commerce, the United States imported $1.25 trillion worth of goods in 2003. Confirmation also comes from the Aberdeen Group, which published a study suggesting that respondent companies would increase their imports of goods and services by 27 percent by 2008: Wal-Mart alone is estimated to have imported $18 billion worth of goods from China in 2004, up from $15 billion in 2003.

Just as strategic sourcing by Best Buy, Wal-Mart and a few other big-box retailers changed the consumer electronics industry forever, no industry is immune to this phenomenon. It is only a matter of time before global sourcing impacts all industries, and the supply chain will never be quite the same again.

The Five Phases of Global Sourcing

The objective of this article is to introduce the five phases of the global sourcing process and to provide some basic pointers.

The five phases are:

  • Strategy and assessment

  • Start-up

  • Formalization

  • Scaling

  • Expansion

These straightforward steps can allow an organization to implement a successful global sourcing strategy in the short-, medium- and long-term.

Global sourcing does not happen overnight, and there are many ways, as discussed in the following sections, to develop a global sourcing strategy.

Global sourcing remains broad and complex, with many different vendors bringing different strengths to the table. Whatever route you take, it is important to appreciate that without evaluating your options, without developing a plan and without working through that plan your global sourcing project will be wrought with unexpected issues and unacceptable risks.

Phase 1 Strategy and Assessment

Overview
The size of a company, its operation and future goals dictate the true needs of its global sourcing strategy. Here, strategy is defined as a detailed plan for achieving success in global sourcing or the skill of planning for such a situation.

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