From the outset, a company needs to define why it wants to adopt global sourcing. If the company's primary objective is to reduce costs, a very different approach will be needed than if the aim is to improve speed of delivery of product to market. If cutting costs is the only factor, don't waste time, effort and energy in defining a lengthy global sourcing strategy; look no further than reverse auctions or request for quotes (RFQs). However, if the main goal is differentiation from the competition, consolidation of supply sources, or the increase of the product portfolio offering to customers, then it is important to take global sourcing seriously and plan accordingly. Whatever the identified objectives, they will define strategy.
Global sourcing is a volatile and forever-changing environment. Process and change management are critical and should not be underestimated. It is very important, once there is senior management buy-in, to win the support of engineering, quality, marketing, human resources, finance or any other functions that may be involved or impacted. It is also imperative that the defined strategy is a flexible one and that contingency plans are put in place to cope with anomalies or failures in performance.
Companies must also be aware of and be sure to comply with specific legislation such as the U.S. Customs & Border Protection (CBP), Customs Trade Partnership Against Terrorism (C-TPAT) and the Fair Labor Standards Act (FLSA), all of which may impact strategy.
Once the global sourcing strategy has been comprehensively defined it is important to scope the resources needed: positive, proactive and structured planning will be key to success. Launching into a sourcing endeavour without proper assessment can potentially bring a company to its knees. It is vital to evaluate your company's readiness to adopt the new strategy. If there is significant unforeseen resistance from employees, existing suppliers or customers, then any global sourcing strategy implementation will be an uphill struggle. The necessary process and change management should not be underestimated.
The result of a company that moves into global sourcing without a pre-defined objective will very likely be confusion. Consider, for example, a company that decides to snap up spot purchases as and when it comes across low-cost products. For customers the result is store shelves stocked with a bewildering assortment of goods that are not necessarily what those shoppers expected to find. The company also risks cannibalizing sales of any full-price branded goods it has on offer and may devalue its own brand image by selling items that may be lower in price but are also of a lesser quality. It is pointless to source a product that sells well only to find that over-all sales of that category have been adversely affected.
- What is your primary objective in global sourcing?
- What are your goals and time scales?
- Have you assessed the true readiness of your company to implement a global sourcing strategy?
- Will you license brands or develop your own private-label brands?
- Will you contract an agent, or will you open your own sourcing office?
- Have you considered your social responsibilities?
- Have you identified which work will be handled by which organization?
- What are the logistics issues involved, and can your existing distribution network support the volatility and added supplies that are inevitable in a global sourcing start-up?
- What level of knowledge transfer will be needed with your new trading partners, and do you have the skills to achieve this?
- Have you assessed the risks of moving to a global sourcing strategy, and can you eliminate or reduce this risk?
Phase 2 Start-up
Once the global sourcing strategy has been defined, assessed and accepted it is time to put it into practice. During this start-up phase organised and controlled growth are essential and it is important to adopt a strategy that:
- covers both near- and mid-term plans,
- leverages existing supplier relationships,
- allows process and change management to be handled in a structured way, and
- gently eases the business into the new global sourcing strategy so that benefits can be appreciated from an early stage.
The critical function at this start-up phase is related to taking the proposed stock item from the drawing board to point of consumption in your organization.