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Global Sourcing

Global Sourcing. Global Sourcing. Domestic Sourcing Same Language Same Cultural/Ethical Expectations Same Legal System Same Banking System Same Transportation No Customs, Tariffs. Global Sourcing. Why Look for Global Sources? Lower Total Cost (Landed) Access to Markets (Countertrade)

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Global Sourcing

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  1. Global Sourcing

  2. Global Sourcing • Domestic Sourcing • Same Language • Same Cultural/Ethical Expectations • Same Legal System • Same Banking System • Same Transportation • No Customs, Tariffs

  3. Global Sourcing • Why Look for Global Sources? • Lower Total Cost (Landed) • Access to Markets (Countertrade) • Access to Raw Materials • Access to Technologies • Other Reasons • Quality • Competition

  4. Global Sourcing • Finding Global Suppliers • Directories • Trading Companies • Embassies/Consulates • Trade Shows • Countertrade • Logistics Issues • INCOTERMS • Other Logistics Costs

  5. Global Sourcing • Problems With Global Sourcing • Good Specifications • Cultural Issues • Language Difficulties • Long Lead Times • Paperwork • Payment Issues • Political Risk • Currency Risk • Security Issues • Sustainability

  6. Global Sourcing • Methods • Intermediaries • Foreign Subsidiaries • International Purchasing Offices • Direct Purchases • Inspection Services • Customs Brokers and Freight Forwarders

  7. Global Sourcing: Communication • Understanding the True Barriers • Speaking • Reading and Writing • Slang and Colloquialisms • Two Word Verbs • Vocabulary • Conversational • Business • Technical

  8. Global Sourcing: Communication • Translators • Local, • At Destination • Types • Translating Written Materials • Business Cards and Titles

  9. Global Sourcing: Payment • Domestic Payment • Payment Up Front (Avoid) • COD • On Account • International Payment • Payment Up Front (Avoid) • Against Documents • Letters of Credit • On Account

  10. International Negotiation • Age, Gender • Status, Authority • Formality • Numbers and Team Composition • Professionalism • “Yes” and “No”

  11. International Negotiation • Silence • Subtleties • Deadlines • Cultural Respect • On Being Alone

  12. Make/Buy and Outsourcing

  13. Make/Buy • Products We Never Make • Products We Always Make • In Between Products: Make/Buy

  14. Make/Buy • Industry Standards, Proprietary Products and Make/Buy • Procurement from Suppliers • Procurement by Manufacture • Fluid Decision • Revisit at Regular Intervals • As Economic Conditions Change • As Internal Conditions Change • Always Maintain Internal Capability

  15. Reasons to Make • Quantities Too Small • Quality Too Critical • Timing Too Critical • Trade Secrets (for a time) • Cheaper • Keep Crew Busy • Avoid Sole Source (perhaps) • Union Shop • Unreliable Supplier

  16. Reasons to Buy • Quantities Too Large • Supplier Quality Acceptable • Have Sufficient Lead Time • Lack of Necessary Competencies • Lack of Capacity • Cheaper • Reciprocity

  17. Vertical Integration • Cost and Responsiveness • Insure Performance • Scheduling • Control • Boeing

  18. Outsourcing • Strategic Decision • Activity is Not Core Competency • Will, In Future Completely Depend on Suppliers • Will No Longer Maintain Internal Capability • Management of Outsourced Activities

  19. Outsourcing • Our Core Competencies • Suppliers’ Core Competencies • Dependence on Suppliers • Strategic Vulnerability • Technology Transfer • Source from Competitors’ Suppliers • Supplier Exploitation • Price Creep • Service

  20. Outsourcing • Firms Rethinking Outsourcing • Rising Wage Rates • Rising Transportation Costs • Currency Exchange Rates • Long Lead Times • Recent Survey (Global Retail Goods Firms): • 50% of firms in survey are considering moving out of China • 26% actually doing it

  21. Supplier Selection

  22. Supplier Selection • Types of Purchases • Industry Standard • Custom Assemble from Common Parts • Custom Manufacture from Common Materials • Custom from New Technologies

  23. Correct Transaction Cost Total trans. cost Cos t s Logistical cost Material cost Admin cost Transaction origin Transaction conclusion Time

  24. Typical Measured Costs • Material Cost • Service Cost • Administrative Cost • PO Cost • Receiving • Accounts Payable • Freight

  25. Back Orders Late Deliveries Defective Material Costs Costs of Rejected Goods Prod’n Stop Costs Project Delay Costs Air Freight Cost of Warranty Failures Extra Inventory Cost Services Incorrectly Performed Invoice Errors Highly Variable Lead Times Freight Damage Costs Typically Not Measured

  26. Time delay Invoice errors Cost overrun Freight damage Cos t s Total trans. cost Raw material delays Specification questions from supplier Transaction origin Time Expected transaction Actual conclusion

  27. Who Pays? It All Depends On What You Negotiate

  28. Criticality Grid High Patent M Prop Tech A R K E T Ind Std Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

  29. Criticality Grid: High Market • Sole Source • High Market Concentration • High Price Volatility • High Supply Industry Capacity Utilization • Patented Product • Proprietary Technology

  30. Criticality Grid: Low Market • Industry Standard Items (Some Differentiation) • Commodities • Non-proprietary Indirect Supply Items • Many Substitutes

  31. Criticality Grid: Low Internal • Little Use • Low Volumes • Unimportant Technology

  32. Criticality Grid: High Internal • High Volume • High Dollar Expenditure • High Price Sensitivity • Pervasive • Key Operating Characteristic

  33. Criticality Grid: Managerial Objectives High Patent Look Ahead Strategic Alliances M Prop Tech A R K E Market Driven Market Driven T Min Admin Cost Supply Continuity Ind Std Automate Operational Alliance Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

  34. Criticality Grid: Contract Applications High Patent Look Ahead Evergreen Agreements M Prop Tech Strategic Alliances A R K E Petty Cash Multi-Year T Purchase CardsSystems Contracts Ind Std Blanket OrdersOperational Alliances Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

  35. Review

  36. Review • Legal Issues • Ethics • Supply Strategies • Commodity Strategies • Supplier Strategies • Specifications • Supplier Selection

  37. Questions, Comments, Observations, Conclusions,Arguments?

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