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Supply Chain Management

Report On

Global Sourcing-Choosing of Suppliers

By:
Jagadish jena (11MBA0076) John Charles suraj (11MBA0016) Md.shahid hussain (11MBA0064) Tanmay Sharma (11MBA0094) Wanboklang (11MBA0096)

Global Sourcing -Choosing of Suppliers

Abstract
Whether it is the made in china concept or Indian software industry growth that strikes our mind while going global in the terms of product or services one thing that we can realize is that the open market philosophy or free trade policy is very vital and important aspect in the current market scenario. In order to sustain and gaining competitive advantage companies came across different strategies that gives rise to the term sourcing which proved to be one of the best practices to being global and make a foot print in the global arena. So here is the term comes Global sourcing that we are going to take a look and the drivers that propagate the operations of a company to a third party beyond the economic and geographic territory of the parent country. When the company optimizes its local market operations, the prime focus is to gain advantage by placing its product in different walks of life across the globe to be a global leader. The mature home market, the limitless growth potential in emerging markets, improved communication technology and changing economics of transportation and manufacturing scale makes globalization spreads industry to industry. These are driven by changing regulatory attitudes and shifting public policy. In order to tap opportunities and to fend off competition organisations are being challenged to increase the level of sourcing by focusing the choosing of global suppliers by a set of strategic purchasing activities which in Booz-Allens term is Balanced Purchasing.

Keywords: Global sourcing, Choosing of Suppliers, Purchase decisions, Factors effecting Global sourcing, International purchase,

Introduction
Global sourcing deals with the same sort of activities that are used in domestic sourcing with a greater complexity. It generally refers to the process of outsourcing its operations and responsibilities outside of a companys traditional market. Choosing of suppliers for the intermediary products, final products or operations globally with a focus of competencies and other strategic requirements is one of the vital aspects of global sourcing. Internationalpurchasing deals with the basic economic activities of buying and selling of goods and services, where the buyers and seller are located in different countries. Under the expand heading of Logistics Supply Chain Management and strategic sourcing are the integral part of global sourcing. The search for new supplier is the continuous priority for the companies in order to upgrade the variety and typology of the offerings. The make-buy decision of the company enables the company locate its suppliers outside and to take the benefit of factor endowments whether it is the technology or access to cheap labour. Today we are situated in a co-operative logistics environment where different aspects characterize the supplier selection problem. Determination of the number of suppliers and relation to them is one aspect and selecting the best suppliers from the existing alternatives is considered to be two different aspects in choosing the suppliers. Several characters like leadtime, product quality, competencies etc are the basic method of assessing the suppliers to select the best in order to promote JIT (just in time) and various strategic requirements of the company. A balanced purchasing process enables the company to capitalise the bargaining power and efficient evaluation of suppliers. There should be a win-win approach to the sourcing which should take the filthy things like cheap labour practices, defective products should be taken into consideration which might lead to the problem like product recall in the future. Choosing of an effective group of supplier make the company efficient in operations that will create a wide acceptance, cost cutting advantage and marketability of the product in different countries. In this paper we will discuss about global sourcing, drivers of global sourcing, choosing supplier strategy, factors that should taken into account while choosing a supplier for the competitive advantage of the organization. It will give a clear picture of global sourcing process and supplier selection process which are vital to the companys operations providing a successful product and service portfolio with respect to acquisition & retention of customer and increasing the profitability of the firm.

Global Sourcing
Global sourcing is the process of identifying, developing and utilizing the best source of supply for the organization, regardless of the location. It integrates and coordinates common items, materials, processes, technologies, designs and suppliers across countries buying, design and operating locations. The major reasons for organizations for going for global sourcing is for lower price, better quality, better services, better process or product technology. A primary reason for choosing global suppliers is to lower the price of materials. This can be because of the cheaper labour costs and raw materials, favourable exchange rates and more efficient processes. On top of these the quality supplied by the foreign suppliers will be better due to newer and better technology and deliver goods faster due to efficient transportation and logistical system. Global sourcing has raised to a new level in the last few decades, due to improvement of communication and transportation technologies, reduction in international trade barriers and tariffs but still global sourcing faces stiff challenges to handle it effectively. Unlike dealing with domestic suppliers, the cost involved in identifying, developing and utilizing foreign suppliers can block the whole supply chain of the organization. Global sourcing factors that must be understood and balanced before going on for a sourcing decision are as follows: Materials cost Transportation cost Inventory carrying cost Cross border tax, tariffs, duty cost Supply and operational performance Supply and operational risk

In current situation, trend is to buy equipment, materials and services unless the domestic suppliers provides a major benefit like protecting technologies and ensuring adequate supplies. Seeing this situation assessing the suppliers and choosing the best suppliers is the prime factor for a company to excel and achieve its goals.

Ways for an effective global sourcing


One should keep five points while making global sourcing successful. 1) Source to country with low labor cost and good quality control Companies generally enjoy 10-35% cost savings if they have selected the right country for sourcing. In the past, China was considered for sourcing for lowest pricing and acceptable quality but now trend has change because the transportation cost alone from China to owner factory door can jack the price considerably on owner landed price per unit, it should be kept in mind that the price supplier is offering for transportation cost should beat all other competing supplier and one should end up with lowest possible price. Now a days companies are turning to Korea, Vietnam and India because of low cost suppliers since China is slowly raising its pricing.

2) Source to a country where you can travel with comfort and ease Once you are in relationship with supplier who is thousands of miles away, you need to visit on regular interval to check the suppliers facility to ensure that they are working with local laws and regulations, work force, to read the market to know about the competitive threats or suppliers knock offs.

3) Source to a country where you can understand the language Communication is one of the important factors, so one should know the language of that country or hire a person who is proficient in that language.

4) Source to a country where you can respect and abide by the laws Source the country where legal protection is available and laws of that country is clear. For example, Vietnam is a member of the World Intellectual Property Organization (WIPO), which offers a legal framework and property protection.

5) Source to a country where you can trust the people you do business with One must become a true insider whenever he decides to do the business. It should be done by knowing the person with whom one wishes to have a relationship, no matter how much time it takes.

Supplier Selection Process

1. How to select Global Supplier To select the global supplier one should be very careful and helpful to you. Several points should be kept in mind, as follows:

Understanding the culture. Different countries have different cultural practices, so one should study the culture of that country before sourcing.

Methods of payment. One should know about the payment methods that are acceptable in that particular country. Such as PayPal is not accepted in many Asian countries while wire transfer is a wide method of payment.

Shipping and Logistics First one should know what will be the cost of delivery of goods where you need them, without knowing that the cost may be significantly higher.

Number of supplier needed For small companies this becomes the major problem because they generally have limited number of suppliers. It is not just because of price but involves lot of factors, such as many overseas suppliers believe that the most important thing in establishing relationship with buyers is the price of goods sold. However, dealing with suppliers that offer lower cost might prove to be most costly.

Negotiation Different countries have different negotiation styles. So one should be educated on this subject to get the deal you are looking for.

2. Supplier selection criteria There are many potential supplier selection criteria, such as:

Reliability Ability of the supplier who can meet commitments and be trustworthy and one can meet the expectations of yours.

Financial Stability If a supplier fail to deliver the goods on time due to financial problems, your reputation with customer may suffer. So you should first investigate the supplier credit history.

Quality and Continuous Improvement The quality of your product is directly related to the product quality provided by the suppliers. The suppliers are regularly improving the quality of the product as per the demand of market.

Competitive Pricing Price of the product or services must be competitive when compared with other suppliers.

On-time delivery Rank the suppliers on their ability to deliver goods on time. This can acquired via reference checks. Because it has great impact on the business and the total cost.

Customer service and communication If the suppliers are unable to communicate properly and are not transparent in their words during the initial stages it is likely to have issues with the supplier in the longer term.

Informative and functional website Smaller companies do not have a well run website thus it will prohibit the manufacturer to see its orders and track their raw materials and this becomes even more important when it comes to work with suppliers from other countries.

Conclusion
After coming across the need for the global sourcing it is obvious that in todays market place where sustainability only can be defined as the Survival of the fittest scenario where only companies like Apple Inc. or Infosys can able to sustain in the long run largely depends upon the global sourcing in order to be out focused in the minds of the customer. By global sourcing these companies gain market value as well as provide value to the end users. These companies should consider the negative externalities like

Exploitation of labor by the suppliers. Product defects that can affect the customers. Negative product quality. Other social costs like deforestation, global warming.

Companies should be taken into the mind while choosing suppliers. Except these costs and private benefits to the firms there are several spillover benefits to the society which are: Cultural Plurality Development of under developed economies. Making the livelihood of the people of under developed and developing economies better. Encouraging Globalization and Several other Social benefits.

References
1. Global Sourcing, Department Of Management Sciences (PUMBA) www.pumba.in/pumba_html_files/global_sourcing.pps (Assessed On 21st August, 2012) 2. Joel.D.Wisner, Keach-Choon Tan,G.Keong Leong, Principles Of Supply Chain Management-A Balanced Approach, CENGAGE Learning,2008,P-68, Pp-76-78 3. Leslie P.Willcocks, Sara Cullen, Mary C.Lacity, The Outsourcing Enterprise-The CEO Guide To Selecting Effective Suppliers, London School Of Economics Information System Group,P-10 4. R.J.Trent and R.M.Monczka, Achieving Excellence In Global Sourcing, Management Review, Vol.47, No. 1.2005,P-3 5. Supply chain note book, www.supplierevaluations.com/supply-chain-notebook/supplier-selection-process-part1.html (Assessed on 23rd August 2012) 6. Supply chain note book, www.supplierevaluations.com/supply-chain-notebook/supplier-selection-process-part2.html (Assessed on 23rd August 2012)