We live in a global economy. Different countries and regions manufacture different products and sell them at different prices. That means a company may purchase aluminum from one country and electronic chips from another. This purchasing strategy is called global sourcing. Global sourcing is the process of buying raw materials and products from across the globe rather than from nearby or within the same country. Ultimately, global sourcing saves money and time. So how did global sourcing start?
How Global Sourcing Led to Savings and Economic Growth
The term “global sourcing” was coined in the 1980s, but the practice has existed for more than a century. As more countries industrialized and developed sufficient infrastructures, many chose niches – or specific products and services – to focus on. This internationalization of the supply chain was due in part to the natural resources different regions of the world have to offer. With more countries specializing in producing specific goods and services, global sourcing will only continue to grow. So why is global sourcing so popular?
When a country or region exclusively develops specific products, they become very good at it, which means they can make the products more efficiently. That means foreign suppliers can charge less for the same products. Lower prices mean your business or company can save money on the raw materials you need for building, manufacturing or other ventures.
By globally sourcing raw materials, you also save time for your workforce. With the time saved from making raw materials, your business can increase capacity by working on the final product. More capacity means more sales.
One of the critical advantages of global sourcing is that it sparks competition. You edge out the competition by saving time and money and increasing your capacity.
How to Globally Source Goods and Services
Many challenges come with global sourcing. The key issues are cultural differences, logistical discrepancies, the potential for poor quality control and operations in different time zones. Each of these factors poses potential problems for your business when you globally source materials. However, you can ensure a smooth and effective global sourcing strategy by following these steps:
- Identify your team. A solid global sourcing team will include workers from the operational and finance sides and other key stakeholders.
- Compare different market rates. This step is an excellent place to consider an expert consultation with global sourcing agencies like Global Certified Fasteners.
- Consider the essential product factors. When looking for suppliers, you should consider the quality, capacity and regulations of the supplies and the supplier. Sometimes, going for the lowest price isn’t the best option if it means poorer quality products or risky adherence to rules.
- Negotiate for the best price. Global sourcing provides room for negotiation. If you’ve narrowed your search to a few suppliers, try lowering the cost through negotiation. This process will occur via phone calls, virtual meetings and continuous contact with the supplier.
- Manage the supplier relationship. Managing supplier relationships can be one of the most challenging aspects of global sourcing due to cultural differences and fluctuating needs. Be sure to prioritize managing the relationship so you continue receiving the best products for the lowest prices. Here, you’ll also want to monitor the quality of the products your business manufactures using these raw materials.