In today’s highly competitive world, global sourcing has become a standard practice and no longer a competitive strategy. Customers always expect better quality products at a lower cost. For retailers to meet these expectations, they must strive to secure high-quality, reliable sources of supply at competitive prices. That’s why the value proposition for global sourcing is continuously increasing.
However, there’s the problem of identifying new suppliers, negotiating contracts, reviewing new products with existing suppliers, and confirming supplier production deadlines which remains a challenging task.
The increasingly globalized market coupled with the increased consumer awareness and demand has forced the industry to perform a constant balancing act. At the same time, businesses all over the world are striving to provide quality products and services to their customers for a considerable profit.
Essential Steps for an Effective Global Sourcing Strategy
Strategic sourcing is the process of gathering and analyzing information about a company’s purchasing requirements and supplier markets, as well as the performance of each supplier with the aim of finding the most suitable sourcing partners for your business. Global sourcing occurs when businesses source goods and services across their home borders. For example, a shoe company manufacturing its products in the Middle East, or Asia. The major benefit is the reduction in labor and material costs for companies that practice this.
Key analysts say that this strategic sourcing provides the best way of reducing procurement costs. Therefore, it is very attractive and allows companies to improve their financial position through cost savings. The main goal of strategic sourcing is to save money, improve the procurement process, manage supplier performance, and minimize risks.
Another importance of global sourcing is that it puts you ahead of your competitors. The ability to source a wide variety of products from a large number of suppliers greatly increases the product portfolio offering. Your business will also have the opportunity to change the entire dynamics of the industry.
Procurement managers focus on finding the best products at the cheapest prices for the benefit of their organization. To make this possible, they have to draft a global sourcing strategy to find, qualify and negotiate with suppliers, and also test and evaluate the quality of each product.
It is a crucial step in global manufacturing – one that occurs early in the product development process. Based on global sourcing strategy, a company then designs its own way of doing business matching. Here is a proven formula for implementing a successful global sourcing process:
Build a Team for an Effective Global Sourcing Strategy
More companies are now adopting the team approach to making procurement (sourcing) decisions. Build a cross-functional team of professionals from various sectors including procurement, finance, operations, and other areas directly involved with the product under development. Appoint a team leader and involve subject matter experts where necessary.
How to do this:
Develop a plan and scope of work: the product team must create the global sourcing strategy that will provide the specifics of the supply and describe the actions to be taken in the management of the supply strategy.
Collect Data: Collect information directly related to the product you are sourcing. The data should be specific and detailed. For example:
- An annual volume of ingredients/parts or units required for manufacturing,
- volume by location,
- total current supplier expense,
- truckload volume etc.
Carry Out Market Surveys on the Suppliers
The purpose of market research is to assess market conditions and the ability of current or potential suppliers to deliver the product under those conditions.
How to do this:
Research multiple sources: Before validating your data, you must first compare and contrast information from various credible sources as this will enable you to make an informed decision.
Let’s look at some examples of credible sources:
- Company annual financial reports
- Industry journals
- Business Consultants and industry professionals
- Industrial/commercial associations
- Seminars and conferences
Once you understand your data (planned budget and expenses; user requirements, market research of supplier, and business activities), this is the right time to create a Supplier Evaluation Scorecard.
How to do this:
Set the criteria for the scorecard. These items must be on a weighted point scale (weighted factors are percentage points on a 100-point basis) – from the most important to the least important criteria.
The items must include:
- Strength and cost structure/financial health
- Management capacity
- Manufacturing capacity
- Regulatory compliance
- Technological capacity
- Quality control
Competitive Bidding, Negotiation, And Contracts Process for an Effective Global Sourcing Strategy
It’s time to put your strategy into action by putting the project out to bid. There are 3 types of bids that can come up: Request for Pricing (RFP); Request for Information (RFI) and Request for Quote (RFQ).
Request for Pricing (RFP) – A request for pricing includes your volume and expense data requesting pricing based on the needs of the global sourcing strategy. This process sets up the final selection process after all the relevant RFPs have been returned and the results entered into the scorecard. The final supplier selection is now the preferred supplier list.
Request for Information (RFI) – This will include questions surrounding the supplier’s ability to manage your business. The information you will get from respondents will help you narrow things down and create your own shortlist. You will then hold personal meetings and site visits with shortlisted vendors.
Request for Quotation (RFQ) – Similar to a request for pricing, a request for quotation is generally used for price quotes for a single supplier service or for buying from a supplier that is not on the accepted supplier list. The prices indicated in the bids will have a time limit on the price.
Negotiation: You should only negotiate with suppliers if you are satisfied that they are capable of meeting the RFP requirements as defined in the selection process. Face-to-face/one-on-one negotiation is always the best option.
Contracts: The company’s legal team should handle the contract because it is a professional task. However, the leader of the sourcing team should act as an intermediary for both companies when conveying corrections/changes or answering any questions related to the contract. Some of these contracts can even take 3-6 months to complete.
Administration of Provisions Relationships
It is necessary that a representative from your company is appointed to manage the partnership between your company and the supplier. Whether that person comes from the sales department, operations, or human resources, the ongoing relationship needs to be constantly nurtured and monitored. In addition, the supplier must be periodically evaluated, based on the status of the product or material (critical or non-critical).
Be prepared to embrace unexpected moments with AladdinB2B because you never know once you are going to be inspired to make new products and successful global sourcing strategy. So let’s build it today with the most recent platform for online trade shows, events and b2b meetings leading to transactions.