Influence of Global Sourcing on Supply Chains

by Michelle C

The dynamics and challenges in the business environment require that businesses incessantly come up with competitive strategies to leverage their operations if they have to remain in business. 

One way of achieving the so much desired competitiveness is through superb management of supply chains, particularly sourcing. It is no wonder most organizations are embracing global sourcing to tap the efficiencies that come with it.

This leads to an important question you need to ask yourself:

Does Global Sourcing Have any Influence on Supply Chains?

Supply chains worldwide are adopting the concept of global sourcing at a remarkable rate. This strategy has had a lot of influence on various strategic decisions and policies. Some of the policies that have had to be reconsidered to align with global sourcing include:

I- Inventory Management Policies

Global sourcing has a direct impact on inventory management decisions. The lead times for globally sourced materials are usually long and uncertain, which ordinarily calls for holding more inventory. When opting to source globally, you may, therefore, have to adjust your inventory management policy, especially if you are a believer of a lean supply chain.

II- Business Process Offshoring Decisions

Often, local markets provide labor and materials which are expensive, low quality, or are completely unavailable altogether. This has pushed firms to the global market in search for cheaper and higher quality materials. In some cases, the decision is self-defeating as the costs are again driven up by other hidden costs like transport, insurance, and import duty, among others.

To realize the full benefits of global sourcing, organizations are now implementing business process offshoring. This is a practice where you shift your operations from your country to the country where resources are available at cheaper prices. In such a case, global sourcing influences what function to offshore and your offshoring destination.

III-Supplier Selection Policies 

Supplier selection is an extremely complex process which becomes even more convoluted when you have suppliers from across the globe. Analyzing bids from local suppliers is not the same as doing so from suppliers worldwide.

Global sourcing will, therefore, require you to adjust your selection criteria to take care of the resultant complexities. This also applies to suppliers performance management.

IV-Risk Management Policies

Looking at the above-mentioned policies and the influence global sourcing has on each, it goes without saying that you also need to re-look into your risk management policy. Global sourcing seems to be exposing your business to new risks whose mitigation you have to consider before you hit the ground running. For instance, business process offshoring comes with some risks like data insecurity. Inventory management policies may also pose stock-related risks like delayed deliveries (hence, downtime), capital tied in stocks, and other inventory holding costs. This calls for a re-evaluation of your risk management policy to ensure you are able to properly mitigate any potential risks.

Global sourcing is the cornerstone of the total production costs for the organization, which in turn informs the profitability and competitiveness of the business. It is indisputable that it has a lot of influence on your business operations. While there is a considerable positive influence, there could be some negative influence, which, if well taken care of, can turn out positive and instrumental to the overall business performance.

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