Sourcing is one of the key elements of the supply chain process and it focuses on finding a cost-effective and reliable supplier that would provide you necessary supplies timely. In fact, some businesses and companies go global to connect with customers. Today, we’ll discuss global sourcing in supply chain management; its definition; advantages, and disadvantages.
Supply chain management is a very big and mega process and sourcing is just a small part of it. SCM outlines various stages starting from procuring raw materials, manufacturing, and then delivering goods to the end consumers. However, it comprises various processes like sourcing, manufacturing, product development, production, logistics, and distribution. It guides you to employ IT (information technology) tools in various stages of the SCM process and delivers the goods to the end consumers.
Some of the main elements and stakeholders in the SCM process are as follows;
- Product development
- Production and manufacturing
What is Global Sourcing in Supply Chain Management?
Global sourcing is the method of finding raw supplies, materials, and goods from the global market way beyond geopolitical boundaries. Often, global sourcing focuses on taking advantage of global efficiency for the delivery and transport of their products and goods. The efficiencies could be in the following forms;
- Low-cost skilled labor
- Raw material at a lower cost
- High international competition
- Latest technology
- Low trade tariffs
- Tax breaks
- Other economical benefits
Database services, mobile phone applications, and IS applications are some of the main technology products, projects, and services. Usually, businesses and companies outsource such types of work from the global market and countries like the Philippines, India, Pakistan, and Bangladesh to gain a cost advantage.
Some of the main globally outsourced products and services from low-cost English workers (from the Philippines, India, and Pakistan) are as follows;
- Call centers
- Low-cost labor
- Labor-intensive manufactured goods
- IT Work
- Low-cost programming from Eastern Europe, India, and Pakistan
The project of global sourcing in SCM is a main element of procurement strategies and strategic sourcing of various multinational companies. Often, it has associations and links with the central procurement strategy of multinational companies. The focus of central purchasing authority is to achieve economies of scale through benchmarking and corporate-wide standardization.
It is possible that IPOs (international procurement organizations) are part of a global sourcing strategy of a company. The main responsibility of procurement companies is to recognize and create key suppliers among sourcing categories; it allows you to satisfy the periodic sourcing requirements of a parent company.
Some steps would allow you to shift the focus on country-based sourcing efforts. Large and complicated countries like China have got various sub-markets, and the suppliers comprise the whole value chain of a country.
Such IPOs would develop and become procurement companies in their way over a period of time, and it comprises fully engaged quality professional teams and experts. It is significant for businesses and companies to clearly outline scale-up and integration plans for IPOs.
Global Sourcing Levels
Some of the global sourcing levels are as follows;
- Domestic procurement only
- International procurement is made on urgent and needed based
- Sourcing methods that outline global procurement
- Central and Well-coordinated procurements across the globe
- Integration and global collaboration with other functional and operational groups
Advantages of Global Sourcing in SCM
Some of the main advantages and benefits of global sourcing in supply chain management are as follows;
When you have got various overseas suppliers, and then it allows you to employ environmentally friendly and sustainable methods and practices for the shipment of products and goods.
Various countries have got specialization and expertise in different production categories. Foreign suppliers would help you to have a better quality of products and goods than domestic supplies.
When the demand is very high during the season, then the domestic suppliers can’t deliver your orders on time. In such cases, you need to establish links with foreign and global suppliers to keep up with the demand.
Interacting with new suppliers and vendors would help you to come up with new ideas, and they would change your entire thinking and analysis process.
Often, global suppliers offer you supplies and products at a very low price, and you would experience an immediate cost reduction in your strategies.
Disadvantages of Global Sourcing in SCM
Some of the main disadvantages and challenges to global sourcing in SCM are as follows;
Your intellectual property rights (IPR) would be at risk while dealing with global suppliers because you don’t know how they would use your slogans, trademarks, patents, and logos.
Political & Financial Risk
While dealing with global suppliers, you are always exposing your business to political and financial risks. This risk is much higher if you’re coordinating with suppliers in the 3rd world countries.
There are some hidden costs involved like training and development, time, and resources invested in the learning of foreign suppliers. The hidden cost is very high in developing and young companies.
Conclusion: Global Sourcing in Supply Chain Management
After an in-depth study of global sourcing in supply chain management; we have realized that global sourcing could offer your business a lot of benefits. If you are learning about global sourcing in SCM, then you should keep in mind the abovementioned elements, advantages, and disadvantages.
Ahsan is an accomplished researcher and has a deep insight in worldly life affairs. He goes Live 3 days a week on various social media platforms. Other than research writing, he’s a very interesting person.