Originally posted on https://visichain.io/global-sourcing-procurement/
When it comes to growing and maintaining a business in the modern tech age, it is essential to know how to source and procure products. Choosing the right sourcing is crucial because it keeps your supply chain moving forward at the fastest rate possible.
To start, it is vital to find the best sourcing methods and locations that will best serve the needs of your business while keeping your ROI (return on investment) high.
Sourcing can come from a variety of locations and operational models. Below are some of the most popular sourcing solutions available to businesses today.
Insourcing
Insourcing is the process of sourcing only within one’s organization or country rather than going outside of this to provide services or products, processes, or technologies.
There are some advantages to this approach, including:
- A higher level of control of information and functions
- Increased knowledge of the supply chain and processes
- Easier to make changes
- A smaller level of risk
- The tendency to produce more top quality in most instances
Businesses, like countries, must protect their revenue and resources by building firm reserves and not dealing with risky partners.
But insourcing within one’s organization or country only does limit the scope at which you can expand and “ramp up” your organization.
Also, it’s a good idea to utilize the local resources of countries that harvest or use your raw materials regularly as the price may be lower than finding it within your own country.
Onshoring
Onshoring is the process of dealing only with suppliers and partners who are located within proximity to your business.
A business may even choose to locate closer to a supplier that they need regular products or raw materials from such as an automaker who needs to locate close to a car parts manufacturer. This may even be written into the trade contract to finalize the deal.
The goal is to increase the speed of their supply chain and to keep business always moving at a fast pace to meet customer demand. This is effective when a company is closely related to the supplier in terms of industry and where geographical location is essential and practical.
Nearshore
Nearshoring has to do with making supplier deals with countries who share your border.
For example, Russia has dealt with China and North Korea primarily because it is easier to transport goods that are transported across the border and products can be received faster than if they deal with countries across the ocean.
However, these countries are open to trade deals with many other countries provided it is fair and practical.
Offshore
Offshore sourcing is utilized in cases where personnel costs of a company need to be reduced.
By utilizing the resources and services available from a faraway country, a company may reduce its operating costs substantially.
However, they should focus on good communication to make this arrangement successful. Sometimes the language barrier is a challenge, also.
Global Sourcing
Internationalization is accomplished through a shift in focus from domestic purchasing to global-based material sourcing, processes, and technologies.
Suppliers can be perceived as anything that offers the right materials or processes that you need to run your business successfully.
By sourcing from a wide variety of countries and locations, you increase your ability to expand and branch out to serve a global community.
Levels of Global Trade in Your Business
There are many levels of global trade and sourcing.
Below are the standards that a business may achieve regarding international and global supply.
It should be the goal to ascend to Level 5 eventually provided the deals you make with these locations are fair to both sides.
Level 1
Businesses that are at Level 1 only rely on domestic sourcing. If they live in the US, they would only deal with US suppliers.
This is fine provided a business can expand and grow based on only US-based suppliers. But to become a company that embraces global trade, some sourcing should be sought with other countries.
Level 2
At Level 2, a business may focus on international trade and sources, but only when it is needed.
This stage allows companies to reach out to other locations when their home country or region does not have the supplies or the goods they need to expand, but they refrain from sourcing elsewhere unless it is necessary.
Level 3
When businesses start to focus on international purchasing as a part of their global sourcing strategy, they are on Level 3.
These business owners realize the value that can be gained from sourcing on the worldwide level though they may still give priority to their home country, which is fine.
Level 4
Focusing on globally-integrated sourcing strategies helps a business to be considered high in global trade and relations and may improve their status in the market as a globally-traded company.
Attempting to combine the best of both countries in trade agreements may lead to better relations between the countries and entities that are coordinating their efforts.
Level 5
At Level 5, the highest level of global outsourcing, a business is focused on globally integrated sourcing at different divisions.
They are open to trade and sourcing with a variety of trade partners, and they realize the value of sourcing to multiple suppliers.
Global Sourcing Examples
Some examples of global sourcing include mobile applications and SaaS products that can be easily outsourced to Pakistan or India, where the labor is cheaper and the price of delivery more economical.
Other examples are listed below:
- Call centers in India or the Philippines
- IT work by low-cost programmers
- Manufacturing through China or other Asian countries
The Challenges of Global Outsourcing: Quantity vs. Quality
The factor that businesses, both large and small, must always keep in mind is whether the product that is outsourced to the lower-paying manufacturing companies and countries where the quality may be lower will be as high in quality than if sourced in the US.
Sourcing deals should be beneficial to both countries and to the company without sacrificing quality to your important customers.
While it is a good practice to source to cheaper labor, a business owner or manager must always weigh the cost based on the quality of the product they will receive when outsourced to other countries with lower standards of development or manufacturing than your home country.
Global Sourcing without Globalism: Is it Possible?
There are a lot of discussions these days under the Trump administration of “globalism vs. nationalism.”
Globalism is the idea of “one world government or trade” while nationalism puts one’s countries’ needs above others.
While it is important to the country to support suppliers to build a business within one’s own country, it is okay to create global trade deals with other countries, provided it is mutually beneficial to both sides.
President Trump has had to increase tariffs on some countries who want to get a better deal that the US when making such deals.
As a business owner also, you cannot afford to lose money either in a deal that results in lower quality and lost revenue.
President Putin of Russia recently said, “Russia will be a sovereign state or no state at all.”
This indicates that Russia also wants to maintain strength for their own country’s economy while engaging in global trade that is beneficial to all partners.
A Word About Procurement
Procurement is the process of curating the best products or services by finding the best suppliers who have the raw materials or basic services to help you create it.
Think of global sourcing as a community effort to create the best products and services where everyone is a potential partner.
Quality must be maintained whether it is insourced or outsourced and losses must be kept to a minimum. So much thought and research should be put into the equation.
Conclusion and Final Thoughts
Careful selection of sources, no matter where they are sourced from, is important to maintaining quality no matter who you source to.
Remember that whatever company or country you are dealing with, you are investing in. So make sure it is something you want to embark on before making such deals.
Find stable global partners who want to be fair to both sides and who have the resources to help increase your supply chain while both sides benefit from the exchange.