Topic 4 - Global Sourcing

Question 1

Local vs Global (5 levels)

Answer 1

Level 1: Engage in domestic purchasing only
Level 2: Engage in worldwide buying if necessary
Level 3: Worldwide buying as part of purchasing strategy
Level 4: Regional and Global coordination of worldwide purchasing strategies
Level 5: Integration and coordination of worldwide purchasing strategies with other functional groups and processes

Question 2

Why source globally?

Answer 2

1. Cost/Price Benefits
2. Access to technology
3. Quality
4. Access to only source available (e.g. rare earths)
5. Introduce competition
6. React to buying patterns of competitors
7. Establish a presence in a foreign market

Question 3

Challenges of Global Sourcing

Answer 3

1. Low supply chain responsiveness (especially in VUCA situations)
2. Increasing logistics costs
3. Unstable supply
4. Less control over quality assurance
5. Low visibility of data
6. Difficulties in coordination
7. Lack of genuine partnership
8. Obstacles in performance management
9. Labour rights, environmental and ethical considerations

Question 4

Barriers to global sourcing

Answer 4

1. Lack of understanding of international procedures
2. Lack of knowledge of documentation
3. Resistance to change
4. Domestic market nationalism
5. Logistical, political and financial risks
6. Language and cultural differences
7. Lack of knowledge of foreign business practices
8. Negotiations can be difficult
9. Engineering changes are generally difficult

Question 5

Overcoming barriers

Answer 5

1. Education and training
2. Publizing success stories
3. Globally linked systems
4. Foreign suppliers, with domestic-based support personnel
5. Measurement and reward system that encourage worldwide sourcing
   6, Use of third-party agents or intermediaries that have better knowledge than you
6. Diversifying supply base

Question 6

Risks

Answer 6

1. Credit risks (non-payment, non-delivery of goods, delayed payment)
2. Transport risks (pilferage, damage or total loss)
3. Exchange risks (foreign exchange)
4. Transfer risks (from government restrictions)

Question 7

Mitigating Credit Risks

Answer 7

1. Assess reliability of overseas parties
2. Devise adequate methods of payments (payment in advance, letters of credit)
3. Buy export credit insurance

Question 8

Mitigating Exchange Risks

Answer 8

Natural Hedge: Match currency of revenues to payments

Financial Hedge: Hedging contracts

Question 9

Mitigating Transport Risks

Answer 9

Transport insurance

Question 10

Transfer Risks

Answer 10

1. Access economic situation of overseas country
2. Access trend of political relationship between overseas country and yours
3. Access stability of foreign exchange policies of the overseas countries related to your contract
4. Export credit insurance cover

Question 11

Steps in planning for global sourcing

Answer 11

1. Obtain information and conduct due dilligence about worldwide sources
2. Supplier selection issues
3. Develop cultural awareness
4. Clarity of communications
5. Inventory management + contingency plans
6. Implement legal and compliance SOPs
7. Allocate right organisation resources
8. Calculate total costs carefully