BMTS 2063 SUPPLY CHAIN

STRATEGIC SOURCING

Chapter 8
Global sourcing
 Terminology of offshore procurement

Terminology

International sourcing: Buying outside the firm’s country of manufacture

Multinational sourcing: in such a way that does not coordinate requirements
Foreign sourcing: among world-wide business units of a single firm.

The coordination and integration of procurement

requirements across world-wide business units,
Strategic global sourcing:
looking at common items, processes, techniques and
suppliers.

A commercial transaction between a buyer and a

International procurement:
seller located in different countries.
Drivers for buying from offshore the
Farrington experience
Requirement for offsets

OJEU advertisements

Pressure to reduce costs

Manufacturing flexibility

Access to specialist skills

Market penetration

Domestic non-availability for raw materials

 Challenges to international sourcing

Challenges to international sourcing (Birou and Fawcett 1993)

Rank Challenges to international sourcing Rating
1 JIT sourcing requirements 5.14
2 Finding qualified foreign sources 4.92
3 Logistics support for longer supply links 4.91
4 Culture and language differences 4.61
5 Duty and customs regulations 4.41
6 Fluctuation in currency exchange rates 4.39
7 Knowledge of foreign business practices 4.42
8 Nationalistic attitudes and behaviour 3.86
9 Understanding the political environment 3.82
All ratings are on a seven-point Likert scale with 7 for major challenge
 Key considerations when sourcing
offshore
▪ The buyer’s experience
▪ Currency fluctuations
▪ Supplier evaluation
▪ Culture and language
▪ Political stability
▪ Logistics support
▪ Duty and customs regulations
▪ Contractual risk
▪ Contract management

▪ International quality standards

 Incoterms 2010

Rules for any mode of transport Rules for Sea & Inland Waterway Transport

EXW Ex Works FAS Free Alongside Ship

FCA Free Carrier FOB Free On Board
CPT Carriage Paid To CFR Cost & Freight
CIP Carriage & Insurance Paid To CIF Cost Insurance & Freight
DAT Delivered At Terminal
DAP Delivered At Place
DDP Delivered Duty Paid
Five types of countertrade

1 2 3
Barter/ Counter Buy back/
swaps purchase compensation

4 5
Switch trading Offset
 Comparison of costs of offshore and
suppliers
Expense category Costs Overseas Home
supplier supplier
Area of expenditure
1) Basic price Supplier’s quoted price per item
Packaging
Sea/air freight
Marine insurance
Suppliers final price CIF/destination
2) Handling/transportation Handling charges (port of entry)
charges Storage
Port costs
Internal transport to buyer
Freight forwarding fees
Insurance
3) Customs and associated Customs duties
charges Customs clearance fees
 Comparison of costs of offshore and
suppliers
Expense category
4) International financing
5) Inventory costs
6) Sourcing costs
Total actual or estimated costs
Costs Overseas Home
supplier supplier
Area of expenditure
Costs of documentation
Currency conversion rates
Exchange rate fluctuations
Bank fees
Holding costs of higher inventory
Levels at x% per annum
Costs of visit to overseas supplier
Estimate communication costs
Costs of inspection by overseas agent
Special fees, e.g. translation, legal
 Factors influencing success in
international sourcing
Factors influencing success in international sourcing (Birou and Fawcett 1993)

Rank Factor Rating

1 Top management support 5.68
2 Developing communication skills 5.67
3 Establishing long-term relationships 5.65
4 Developing global sourcing skills 5.62
5 Understanding global opportunities 5.13
6 Knowledge of foreign business practices 5.09
7 Foreign supplier certification and qualifications 5.02
8 Planning for global sourcing 5.02
9 Obtaining expert assistance 4.79
10 Knowledge of exchange rates 4.53
11 Use of third-party logistics services 4.12
Note: all ratings are on a seven-point Likert scale with 7 for major challenge
Source: Birou, L. H. and Fawcett, S. E., ‘International purchasing benefits and requirements and challenges’, International Journal of Purchasing and Supply, Jan., 1993.
Best Practices
 Outsourcing definition

The supply of services governed by an ongoing

or time-specific agreement involving a degree of
delegation of management responsibility, where
that service would more typically be provided by
an in-house team of the customer themselves.
 Outsourcing – what can go wrong?

* Inadequate tendering * Lack of outsourcers personnel

* Inadequate due diligence
* Mobilisation weaknesses
* Poor specification
* Poor measures of performance
* Cost escalation
* Poor contract management
* Absence of continuous
improvement
* Indecisive management actions
when dealing with failure to
meet contractual obligations