Hardware & Tools

Common examples of globally sourced products or services include: labor-intensive manufactured products produced using low-cost Chinese labor, call centers staffed with low-cost English speaking workers in thePhilippines and Pakistan and India, and IT work performed by low-cost programmers in India and Pakistan and Eastern Europe. While these examples are examples of Low-cost country sourcing, global sourcing is not limited to low-cost countries.

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Majority of companies today strive to harness the potential of global sourcing in reducing cost. Hence it is commonly found that global sourcing initiatives and programs form an integral part of the strategic sourcingplan and procurement strategy of many multinational companies.

Global sourcing is often associated with a centralized procurement strategy for a multinational, wherein a central buying organization seeks economies of scale through corporate-wide standardization andbenchmarking. A definition focused on this aspect of global sourcing is: “proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations (p. 304)”

The global sourcing of goods and services has advantages and disadvantages that can go beyond low cost. Some advantages of global sourcing, beyond low cost, include: learning how to do business in a potential market, tapping into skills or resources unavailable domestically, developing alternate supplier/vendor sources to stimulate competition, and increasing total supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated with different cultures and time zones, exposure to financial and political risks in countries with (often) emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality.

International procurement organizations (or IPOs) may be an element of the global sourcing strategy for a firm. These procurement organizations take primary responsibility for identifying and developing key suppliers across sourcing categories and help satisfy periodic sourcing requirements of the parent organization. Such setups help provide focus in country-based sourcing efforts. Particularly in the case of large and complex countries, such as China, where a range of sub-markets exist and suppliers span the entire value chain of a product/commodity, such IPOs provide essential on-the-ground information.

Over time, these IPOs may grow up to be complete procurement organizations in their own right, with fully engaged category experts and quality assurance teams. It is therefore important for firms to clearly define an integration and scale-up plan for the IPO.

Global sourcing is often associated with a centralized procurement strategy for a multinational, wherein a central buying organization seeks economies of scale through corporate-wide standardization andbenchmarking. A definition focused on this aspect of global sourcing is: “proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations (p. 304)”

The global sourcing of goods and services has advantages and disadvantages that can go beyond low cost. Some advantages of global sourcing, beyond low cost, include: learning how to do business in a potential market, tapping into skills or resources unavailable domestically, developing alternate supplier/vendor sources to stimulate competition, and increasing total supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated with different cultures and time zones, exposure to financial and political risks in countries with (often) emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality.