Global Sourcing
Global sourcing
One of the major supply chain developments of recent years has been the expansion in the proportion of products and (occasionally) services which businesses are willing to source from outside their home country; this is called global sourcing. It is the process of identifying, evaluating, negotiating and configuring supply across multiple geographies. Traditionally, even companies that exported their goods and services all over the world still sourced the majority of their supplies locally. This has changed companies are now increasingly willing to look further afield for their supplies, and for very good reasons. Most companies report a 10 percent to 35 percent cost savings by sourcing from low-cost-country suppliers. There are a number of other factors promoting global sourcing:
• The formation of trading blocs in different parts of the world has had the effect of lowering tariff barriers, at least within those blocs. For example, the single market developments within the European Union (EU), the North American Free Trade Agreement (NAFTA) and the South American Trade Group (MERCOSUR) have all made it easier to trade internationally within the regions.
• Transportation infrastructures are considerably more sophisticated and cheaper than they once were. Super-efficient port operations in Rotterdam and Singapore, for example, integrated road–rail systems, jointly developed auto route systems, and cheaper air freight have all reduced some of the cost barriers to international trade.
• Perhaps most significantly, far tougher world competition has forced companies to look to reducing their total costs. Given that in many industries bought-in items are the largest single part of operations costs, an obvious strategy is to source from wherever is cheapest.
There are, of course, problems with global sourcing. The risks of increased complexity and increased distance need managing carefully. Suppliers that are a significant distance away need
One of the major supply chain developments of recent years has been the expansion in the proportion of products and (occasionally) services which businesses are willing to source from outside their home country; this is called global sourcing. It is the process of identifying, evaluating, negotiating and configuring supply across multiple geographies. Traditionally, even companies that exported their goods and services all over the world still sourced the majority of their supplies locally. This has changed companies are now increasingly willing to look further afield for their supplies, and for very good reasons. Most companies report a 10 percent to 35 percent cost savings by sourcing from low-cost-country suppliers. There are a number of other factors promoting global sourcing:
• The formation of trading blocs in different parts of the world has had the effect of lowering tariff barriers, at least within those blocs. For example, the single market developments within the European Union (EU), the North American Free Trade Agreement (NAFTA) and the South American Trade Group (MERCOSUR) have all made it easier to trade internationally within the regions.
• Transportation infrastructures are considerably more sophisticated and cheaper than they once were. Super-efficient port operations in Rotterdam and Singapore, for example, integrated road–rail systems, jointly developed auto route systems, and cheaper air freight have all reduced some of the cost barriers to international trade.
• Perhaps most significantly, far tougher world competition has forced companies to look to reducing their total costs. Given that in many industries bought-in items are the largest single part of operations costs, an obvious strategy is to source from wherever is cheapest.
There are, of course, problems with global sourcing. The risks of increased complexity and increased distance need managing carefully. Suppliers that are a significant distance away need