Why Global-sourcing is Important in 2021?
Global sourcing is a procurement technique aimed at taking advantage of the global efficiencies for the supply of goods and services. In today’s dynamic market scenario, it has become synonymous to strategic supply for MNCs.
In short, global sourcing is a ‘strategic business philosophy’ that coordinates the most cost-effective manufacturing and operational inputs in the world, such as men, machinery, machines, technology, manufacturers, engineering and other essential facilities.
Sourcing overseas refers to the procurement from producers or suppliers of goods, products or services located outside your home country. Although domestic sourcing usually enables faster logistics, better control of manufacturing and shorter time to market, overseas sourcing is generally considered cheaper.
Benefits of International procurement
One of the key benefits of global procurement is cost-savings. Many international suppliers and manufacturers, especially in low-cost regions, offer their services at a competitive price.
In general, production prices are lower and companies may also purchase products at a lower unit price. This can be a perfect way for organizations, with tight budgets, to maximize their bottom line. Bear in mind, however, that any possible cost savings, such as expensive foreign administration or correspondence, transportation costs or duty rates, may influence this.
Other factors can tip the balance in favor of sourcing overseas, in addition to the often lower unit cost. For instance:
- Access to world-class technology that is available in some markets
- Access to cutting-edge research, production or advanced skills
- Proximity to raw materials that may be nationally inaccessible
- Manufacturing skills that might be globally inaccessible
- Better quality goods relative to domestic products
- A wide number of possible suppliers that you can pick from
Moreover, by getting to know the consumer, companies that start abroad are also able to boost their competitive position in the supplier’s home country.
Disadvantages of international sourcing
International procurement is usually more complicated than the domestic buying of supplies.
While the benefits of sourcing overseas can be apparent, the particular challenges and increased risks must be carefully considered and handled. For example, the different customs requirements, cultural and linguistic variations, quality risks, currency fluctuations, complicated logistics, etc. struggle with increased rules and regulations that apply in foreign markets. Often, these barriers are the reason so many companies prefer to stick with local suppliers.
You should take action to scrutinize and appreciate all of the nuances involved in order to make sourcing overseas a success. Learn more about the complexities of sourcing overseas.
Challenge: A top beverage firm was planning to produce stainless steel and chrome-plated brass actuator shafts for its dispensing systems. The business tried to merge suppliers and decrease costs but had encountered problems with porosity and part-to-part dimensional variance from previous suppliers. In order to ensure smooth operation of the actuating arm, with just the right effort and feel for the end user, strict tolerances for the scale, shape and finish of the interior slot were included in the production requirements. The shafts also had to meet strict specifications for surface color and appearance, matching approved customer-provided samples.
Solution: To begin with, a single partner who could manufacture and machine both stainless steel and brass investment castings to the necessary specifications was established. Together, they created casting processes that removed porosity and reduced dimensional variation to the appropriate tolerance levels needed for the shafts to perform consistently during actuation.
Working with the same partner, machining protocols were developed, including a critical broaching process for the interior slot that guaranteed smooth operation and provided the effort and feeling the customer sought. Gauges and testing protocols were also developed to verify that the dimensional consistency routinely satisfied the requirements of the consumer.
Finally, a second source was found for chrome-plating the brass shafts and passivating the stainless shafts to the requirements of the beverage industry. Processes were established and several test measures were worked on that produced surface finishes that reliably matched customer-provided and accepted samples.
In the end, the production costs of the client were reduced eventually and increase in the quality of the component was brought in. 99 percent on-time delivery to date, with less than 1 percent quality cost and a low scrap rate of 14 ppm was achieved for this customer.
Challenge: In Illinois, Midstate Lamp is a small company that produces low-pressure gas/propane lamps to replace electric 100-watt bulbs used in homes. As an Amish-owned company, many components of their lamps are manufactured in-house, sometimes using time- and labor-intensive methods, including the aluminium valve body.
Although the company often contracted an outside supplier to boost production times, they had difficulty finding one that could reliably supply the valve body with the quality they needed. Improper threading in the internal chamber, which can cause the lamp to fail, were the two main quality issues, and low adhesion of the anodized aluminium coating, which degrades the general appearance. Midstate demanded that the consistent output and improved turnaround they were seeking be delivered.
Solution: First, a sourcing partner capable to machine aluminium with high precision was found. To ensure that all measurements and, in particular, threads precisely complied with the design requirements, collaboration was set with them to establish custom fixing and machining processes.
This included the procurement of custom thread gauges and tooling to meet the tolerance and functional specifications of Midstate. In order to ensure proper adhesion and appearance, a partner was appointed to conduct the anodization and implemented strict quality control steps. They also applied the final product markings through a silk screening process.
Midstate was pleased with the quality and delivery of the components provided to them. In addition to saving them 20% on material costs, the initiatives also simplified their sourcing process and released their in-house capacity for other business units and goods.
The client is a national supplier for industry and retail outlets of milk drinks, dairy and fruit juice. They faced major challenges in ensuring reasonable service levels for customers with customers who, if service levels did not improve, threatened to de-range different items. Our client requested assistance in evaluating their demand forecasting processes and instruments in order to find opportunities for change.
- Different groups had different preparation and process maturity levels within the organization.
- For their forecasting, preparation and production needs, the organization used a mix of system-based planning software and manual spreadsheets. Additionally, for the speed and complexity of this sector, system-based forecasting was not optimized.
- The management mechanisms used to organize plans and events have not been completely implemented and aligned across all organizational functions.
A project was commissioned to perform a comprehensive forecast evaluation and inventory analysis and to design an organization-wide framework for sales and operations planning:
Comparing the current activities of the organizations to industry best practices, a systematic gap review of existing planning activities was performed.
This analysis was then overlaid with the particular demands of the customers in the following dimensions:
- At the level of the channel (e.g. Retail, Convenience & Food Service)
- Functional Level at Group (e.g. 3rd Party Manufacturing)
- To understand demand, inventory and range problems, a ‘deep-dive’ inventory review was conducted across 5 product categories and two distribution channels.
- Optimization at the service level, optimization of inventory, minimization of obsolescence, potential overstock and understock status, and analysis of profitability were essential to the investigation.
- Structures for meetings, monitoring, inputs and outputs and KPIs have been determined.
- Up to $23M reduction in reported inventory holdings.
- Improvements in service quality from 87% to 98%
- A reduction from $32M to $15M of damaged and dated (D&D) items.
- Identification of the contribution of particular SKUs to D&D, excess stocks and understocks and their subsequent lost sales.
- Updated KPIs with an emphasis on organizational alignment and the creation of key business performance measures.
- Recommendations on enhancing the current planning tool’s operational performance, plus a clear recommendation to replace the existing tool with a best-of-breed solution.
- An improved S&OP framework of greater responsibility and ownership for management.
As a result of the construction of a new state-of-the-art production line and operating software update, the client commissioned the project to build their new Reel Store in Botany, NSW. The construction of a Reel store attached to their relocated Mill at Botany was part of the project. To accommodate the substantial potential increase in production volumes, a new Reel warehouse design was needed.
A key objective of this study was to define design strategies to mitigate identified risks and hazards while maintaining optimum potential for use, enhanced process and productivity at the same time. To achieve this objective, a detailed assessment of safety, travel times, product movement, system and process related issues was required to determine their impact on warehouse performance and capacity, including:
- Material flows and feed output
- Operating procedures and policies for warehousing
- Cubic and footprint usage capacity
- Material Processing Equipment and prospects for automation
- Travel distances and dock setup for boarding.
- A detailed and interview/data-based assessment of the warehousing operation was performed, including the following activities:
- Targeted interviews with workers concerned with problems of individuals, programs, processes and facilities
- Examination of running warehouse procedures and historical SOH and sales data
- Established WMS functionality required to drive design and process improvements
- High-level studies into product/place marking practices and position management approaches
- Analysis of travel distances to determine potential levels of organizational target management and appropriate routes for picking.
- Detailed safety and risk assessment to determine the trade-off between optimum ability, operational productivity, compliance with OH&S laws and “lowest” risk operation.
The ideal layout found focuses on areas such as operating procedures, travel distances, and protection. Finalized loading zone and internal driveway positions to mitigate capacity effects and decrease hazards while ensuring compliance with the council and regulations. The necessary software capabilities to drive changes in the warehouse were established. Recommended levels of manning to meet current production criteria were set.
Italy makes up 87.8% of the Kering Company’s global supply chain, one of the biggest global players in the luxury market. The Italian supply chain is mostly made up of small and medium-sized companies (SMEs): Highly specialized but still mostly craft enterprises, usually owned by families and hiring fewer than 50 people on average. BSR research indicates that the majority of these workers are women: women were 63 percent of the employees of the 189 suppliers involved in this project.
Kering is committed to gender equality: In 2019, Thomson Reuters ranked Kering 10th out of 7,000 global organizations in their Equality & Diversity ranking. Nevertheless, with the objective of achieving gender balance and ending the gender pay gap at all levels of the business, Kering’s aim for 2025 is to go further. As part of these initiatives, Kering partnered with BSR to explore the less obvious barriers to women’s economic empowerment in Italy and to determine how luxury firms could address them. Italy is ranked 76th on the World Economic Forum Global Gender Gap Index 2020, suggesting that gender inequality remains a major issue.
Collaboration with Wise Growth, an Italian advisory organization was undertaken for conducting a variety of research and data collection activities. Together, they examined the workplace gender equality policies and practices of 189 suppliers and the perceptions and experiences of 880 workers (620 women and 260 men) across the supply chains of the Kering family of Italian brands: Bottega Veneta, Gucci, Kering Eyewear and Pomellato. In order to hear first-hand testimony, they gathered gender-disaggregated evidence, interviewed supplier management, and engaged workers, including through dedicated focus groups with female staff.
Results and Effects
The robust supplier engagement strategy and on-the-ground research allowed them to gather the most comprehensive data to date and to produce a robust analysis of a previously ignored topic. Included findings:
- Women do not have access to the same working conditions and economic prospects as men: women account for 63% of the population, but just 25% of managerial positions, remaining mostly as blue collar employees within factories in traditional roles.
- Women seldom hold leadership positions and have minimal professional career development opportunities: cracking the glass ceiling is especially difficult, and 59% of women feel discriminated against during the work cycle.
- The effects of family obligations are seen as barriers to gender equality: in particular, motherhood is seen as a burden by 39 percent of women who fear its effects on their career when they return to work and its overall impact on having and retaining a job and professional development.
- Furthermore, joint parental roles are still rare: domestic and family care responsibilities still fall overwhelmingly on their shoulders and impair their work-life balance for 69 percent of women.
The Success Stories
Best-in-class supply chains integrate a core list of features that describe their performance with outstanding management and set them apart. Such features include proactive use of big data, highly optimized inventory management, order fulfillment flexibility and speed, process implementation customization, energy sustainability, and, of course, enforcement. Sustainable supply chain companies are the ones that will be competitive well into the future, because, in addition to protecting natural resources, these activities minimize costs and increase productivity.
The third-largest of its kind is the British-Dutch consumer goods company Unilever, which sells food, drinks, personal care products and cleaning agents. Unilever started a five year growth plan at the beginning of 2000, which included a major transformation of its supply chain management. They concentrated on organization, processes of global procurement, executives of the supply chain, participation of manufacturers, and technology. As a result, it achieved savings of $14.24 billion in 2003 from its programs, and Unilever became a leader in the consumer packaged technology adoption industry.
Due to a structure where success is shared and respect is exchanged between McDonald’s and their suppliers, the leading fast-food brand has consistently ranked high for outstanding supply chain management. This strategy has been incredibly popular, as McDonald’s now serves 68 million customers every day in more than 100 countries with over 35,000 restaurants.
Cisco Systems has a highly complex and vast supply chain that stretches the globe, leading the world in IT and networking with their innovative computing architecture. In order to improve business size and agility, the company recently revamped its supply chain management. By introducing new business models, a single ERP example, standardization and automation across the supply chain, they have been able to improve their agility, flexibility and ability to scale.
H&M, a worldwide apparel retailer, has been recognized internationally for its financial and business performance. For some of the major components of their supply chain, such as inventory management, the company’s dependence on quality and automated systems has played an important role in their success with stock control. The supply chain strategy of H&M focuses on cost-effectiveness in manufacturing and reducing product lead times, both of which have contributed to their prominence in delivering chic, trendy designs with rapid turnarounds.
With rapid turnarounds, offering sleek, trendy designs.
Nike, the maker of footwear and sports apparel, is currently leading the industry with its production outsourcing strategy. Nike has enjoyed remarkable supply chain success with more than 700 factories located in 42 nations around the world. The company’s priority areas include lean manufacturing for improved labor efficiency and decreased waste, inventory consolidation, and innovation and automation of their manufacturing process.
Colgate-Palmolive has undergone an extreme reorientation of its supply chain over the past decade to switch from regional production to multinational manufacturing. Through this phase, the multinational consumer goods business has resolved some severe inefficiencies in its supply chain, creating more than $4 billion in savings. The reasons behind this successful transformation are four major changes: the removal of silos caused by regional supply chains, the widening of the global marketplace’s procurement footprint, investment in customer care and logistics, and an emphasis on support.
Starbucks’ supply chain has a lot of room for inefficiencies and procurement waste due to scale alone. The famous coffee company’s commitment to sustainability and quality, however, helps keep the supply chain running smoother than you would imagine for a company in more than 50 countries with 15,000 stores. This is because Starbucks uses such essential best practices in the supply chain, such as centralizing its management structure, using emerging technology, controlling its supplier partnerships, strictly vetting suppliers, contributing to creativity, and eliminating waste and inefficiency.
As one of the world’s leading food and beverage firms, PepsiCo is the parent company of hundreds of household brands that are diverse and beloved. The company has done an outstanding job of transforming its supply chain ability to manage more complicated goods to meet market preferences for more balanced foods than carbonated soft drinks and packaged snacks. In order to achieve a resilient and effective supply chain suppliers and consumers alike, PepsiCo has developed major changes such as sustainability measures, collaborative production scheduling, setting inventory buffers, and strategic procurement and sourcing, Supply Chain Brain notes.
THE COCA-COLA COMPANY
Coca-Cola has 21 billion-dollar brands as the world’s largest beverage company, with nearly 4,000 different drinks to choose from and a footprint on Earth in every region. 95 percent of the drinks are manufactured in the country where they are sold in order to satisfy customers with greater quality and reduced costs. The Coca-Cola Company is able to reduce processing time by keeping production and sourcing local. In the company’s supply chain, sustainability, infrastructure and retailer partnerships are also main areas of emphasis.
Nokia, a communications and information technology corporation, owes much of its success in supply chain management to a commitment to agility. Nokia’s global success has resulted in a history of adaptation, combined with precise supply chain management and long-standing strong supplier relationships. Through incorporating the following efforts, the supply chain agility of the business can be replicated: an efficient flow of knowledge between suppliers and consumers, collaborative supplier partnerships, a postponement strategy and design, inventory buffers in the event of a supply chain interruption, key product stockpiles, a secure logistics system, and contingency plans with assigned crisis management teams.