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Global sourcing is a term used to describe strategic sourcing in today's global setting. Most companies now include global sourcing as part of their procurement strategy. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. Common examples of globally-sourced products or services include: labour-intensive manufactured products produced using low-cost Chinese labour, call centres staffed with low-cost English speaking workers in India, and IT work performed by lowcost programmers in India and Eastern Europe. While these examples are examples of Low-cost country sourcing, global sourcing is not limited to lowcost countries. 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 and benchmarking. A definition focused on this aspect of global sourcing is: ³proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations.´
What Should A Global Sourcing Strategy Address?
Costs ± A global sourcing strategy is often used to benefit from lower labor costs abroad. But there are also other additional costs for a buying organization to bear that aren¶t part of domestic transactions. They include multi-modal freight charges, broker fees, bank fees, taxes called duties, and insurance to name a few.
Laws ± Global sourcing forces buyers and suppliers to choose one of three bodies of law to apply to their contract: the law of the buyer¶s country, the law of the supplier¶s country, or one applicable under a treaty accepted by both countries.
Currency ± The buyer and the seller must agree on a currency to use. While some buyers insist on their own currency for simplicity¶s sake, prudent decisions consider use of the supplier¶s currency when the buyer¶s currency might strengthen relative to the supplier¶s currency between the agreement and payment dates.
Lead Time ± Lead time for global purchases is usually significantly longer than for domestic ones. This is due to ocean travel being slower than air travel and customs clearance adding time not involved in domestic sourcing. Language & Culture ± If you¶re unfamiliar with the supplier¶s language and culture, you increase the risk of communication challenges, misunderstandings, and offensive or uncomfortable encounters. Transportation ± While domestic sourcing usually involves one shipping mode, global sourcing involves multi-modal transportation ± a strategy for combining air, water, and ground transportation to get goods from the supplier to the port of the supplier¶s country to your country¶s port to your dock. Payment Methods ± Global sourcing often involves payment using a letter of credit which requires the involvement of both the buyer¶s and supplier¶s banks.
Functions of Global sourcing
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.
Costs incurred in Global sourcing
Cost savings due to global sourcing:
Ericsson - a global company with strong Indian presence
Ericsson offers a complete spectrum of telecom solutions and has contributed in just about every facet of telecommunications in India for over 100 years Ericsson has played a major role in spreading the cellular revolution in the country More than 2000 employees across 24 offices in India, headquarter in Gurgaon Leader in Managed Services and Broadband in India Manufacturing units in India since 1994 Ericsson launched its research & development facility and global service delivery centre in Chennai on February 25th, 2006
The fierce competition puts increased focus on sourcing«
«and India is one of the most competitive markets Ericsson has built a strong Sourcing organization to ± ensure competitive prices for our customers ± ensure competitive products and quality ± be able to utilize the sourcing opportunities following global, boundless possibilities Key characteristics are ± Global, consolidated Sourcing organization ± Local presence to support business needs and secure optimized supplier base ± Commodity oriented ± Separation of strategic and operational sourcing ± Aiming to be ³best in class´ in our industry ± Sourcing is defined as a basic condition to achieve Operational Excellence within Ericsson
Ericsson in the forefront of sourcing
To stay ahead of competition, Ericsson Sourcing practices are continuously developed
We need to« Continuously re-think our sourcing strategies Ensure operational excellence in sourcing Create conditions to source both globally and locally, flexibly and seamlessly
through« Cross border synergies Global processes ± based on best practices Modern tools ± utilizing the capabilities of new technology Utilize wise outsourcing and off-shoring Localization ± utilizing strong Indian supply market
Walk the talk ± true global sourcing
1)Cross boarder synergies are essential Balanced mix of global (corporate) and local/regional functions Strong focus on global practices Easy access to commodity specialists Organizational transparency Global access to information Global and regional network of sourcing professionals Global access to the supplier base Enable competitive suppliers to make business outside their own local markets
Global sourcing with local touch
2)Continuous adoption to best practices Continuous best practices development Adherence to global practices and processes ± one way of working Local adaptation only within global processes Increased transparency to enable adoption Utilization of common tools, templates, databases Focus on Core Values and Code of Conduct
Ericsson makes global use of the sourcing practices developed due to the fierce competition in India!
Global sourcing and localization go hand-in-hand
3) Modern tools is the foundation for global sourcing practices, and for global/local sourcing flexibility
Examples of tools« ± Spend Management ± eSourcing ± Contract Management ± eProcurement ± eInvoicing/OCR
«that enable ± Know your numbers ± Instant access to local sourcing regardless of location ± Transparency and visibility (instant access to data regardless of location) ± Unified sourcing practices across the company
Growing outsourcing and off-shoring«
4)«but needs to be done wisely Outsourcing and off-shoring ± Manufacturing ± IT ± R&D ± Logistics & Warehousing ± Business Process Operations Considerations ± High start-up costs ± Consider over-head costs (e.g. ³liaison officers´) ± Quality assurance important ± Language can be a problem (dialects and culture affect) ± Code of Conduct ± crucial to Ericsson
Indian suppliers important to Ericsson
5)Utilizing localization Traditionally, sourcing of IT services has been in focus but now many sourcing areas show significant growth Important sourcing areas ± IT Application Management (off-shoring) Expert Support Application Maintenance Application Development ± R&D activities ± Project related sourcing Mechanical components Site materials Network Rollout Services
³Many purchasing organizations are being challenged to increase the level of µglobal sourcing¶ to tap into promising opportunities and to fend off competition. Unfortunately, many companies are ill equipped for the challenge: though global sourcing employs the same set of activities as domestic sourcing, there is also greater complexity. Based on our experience most companies need to enhance the skills of their purchasing organization to pursue global sourcing effectively.´ -Unknown
Ekta Banka ± 32 Udita Agarwal ± 22 Shradha Mimani ± 15 Shrivatsa Khemka ± 24 Tanay Agarwal ± 26 Aditya Choudhary ± 49 Akhil Jain ± 40 Khushboo Agarwal ± 3 Priyanka Choraria ± 29 Aditya Agarwal ± 25 Yogesh Agarwal - 36
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