Global Sourcing

Terminology:

 Outsourcing involves contracting with independent suppliers outside the organization

(domestic or foreign) to provide products or services that were performed inside the
organization.

 offshoring involves contracting with independent suppliers located

outside geographic boundaries .

 Nearshoring is relocating sourcing to countries geographically closer .

International purchasing relates to a commercial purchase transaction between a buyer and a

supplier located in different countries. This type of purchase is typically more complex than a
domestic purchase. Organizations must contend with lengthened lead times, increased rules
and regulations, currency fluctuations, customs requirements, and a host of other variables such
as language and time differences.

Global sourcing:

Global sourcing involves:

positively integrating and coordinating common items and materials, processes, designs,
technologies and suppliers across worldwide purchasing, engineering and operating locations.

Worldwide Sourcing Location evaluation Criteria:

1
Why Source Worldwide?

Barriers to Worldwide Sourcing:

Transport systems, costs and considerations:

Road transport
Road transport does have advantages over other modes, including:
■ market entry is relatively low cost
■ capital costs of vehicles and distribution points are relatively low
■ point-to-point delivery times can be effectively managed
■ flexibility of route choice gives flexibility when bad weather or accidents occur
■ market dominance for short-medium distance journeys

2
■ road users do not bear the full operating costs, e.g. they do not pay for road building and
maintenance, despite road taxes and tolls.

 Rail transport
Key considerations of rail transportation include:
■ there is effective use of space for the rail lines but distribution points (terminals)
require vast space
■ freight trains have severe gradient restrictions, e.g. approximately 10 metres per
kilometre
■ the design of freight wagons is quite flexible, such as hopper wagons for fertilisers
and triple hopper wagons for coal
■ the standard gauge of 1.435 metres is in wide use
■ initial capital costs are very high with some rail companies investing close to 50 per
cent of operating revenues in capital and maintenance costs
■ the potential for more intermodal transport, for example, using COFC (containers
on flat cars)
■ emergence and development of high-speed rail networks

 Pipelines:

 Some considerations are:

■ pipelines invariably are designed for a specific commodity, e.g. oil and gas
■ they can be subjected to disruption through acts of terrorism
■ they can be subjected to political intervention, e.g. Russia with natural gas
■ terrain difficulties can be overcome, e.g. the trans-Alaskan pipeline
■ operating costs are low

Maritime

Key considerations of maritime transportation include:

■ bulk cargo approximates to some 65 per cent of all ton miles shipped
■ slow speeds averaging 15 knots
■ severe delays in some ports
■ significant capital outlay
■ economies of scale, particularly with full container loads
■ difficulties for the buyer to control transit times
■ the operation of conference (formal agreements between companies engaged on
particular trading routes).

3
 Air transport
Some key considerations are:
■ the threat to supply where there is severe weather, e.g. the Icelandic volcanic ash
issue
■ use of airspace and political interventions
■ relatively high cost but fast speed and flexibility of routes
■ high levels of investment and fixed costs.

 Intermodalism
The need for an integrated supply chain management system played a large role in the
evolution of intermodalism. Some key considerations are:
■ containerization facilitates a quick turnaround
■ relatively low cost
■ clients can use one bill of lading to get a through rate