Advantages and Disadvantages of Global Sourcing for Electronic Components
In modern supply chains, global sourcing of raw materials, components and manufacturing is the norm rather than the exception. Over the past few decades, businesses have increasingly established relationships with third-party suppliers outside their home countries. The production of goods integral to international trade spans global supply chains, involving multiple factories in multiple countries.
The rise of global sourcing has brought new supply chain management challenges that change daily or hourly. This means that supply chain partners are activated early, before shortages and demand peaks occur, and it may mean that production can be scaled down if demand changes. But this agility is hard to achieve, so supply chain leaders need global visibility. Looking at global sourcing through a strategic lens allows for more informed decisions in the last mile of global sourcing. It also means strategic sourcing and working with supply redundancy; all to keep costs down, of course. Today’s supply chain leaders must create a procurement process that includes logistics and contingency measures for raw material suppliers. Any procurement professional needs to incorporate tariffs, embargoes and trade wars into their global sourcing plans.
While the COVID-19 pandemic has highlighted the importance of effective supply chain management to keep global commerce moving, it has also accelerated the widespread adoption of best practices that are integral to sustainable supply chains. As we’ve seen from supply chain leaders like Apple and Amazon, focusing on global sourcing offers a significant competitive advantage over companies that limit sourcing to domestic production.
What is Supply Chain Global Sourcing?
Global sourcing is one of the most important responsibilities of managing a supply chain. It is an integral part of a supply chain that truly spans the world. This differs from international procurement, which focuses on sourcing and managing cross-border supply chains between only two countries. For example, if an automaker in Michigan sources floor mats from Canada but makes the rest of the components domestically, that’s an international supply chain. On the other hand, if an automaker sources brakes from China, engine parts from Japan, and some assembly in Mexico, that’s global sourcing; a complex supply chain with a global focus.
This global focus is key to realizing product margins that drive organizational success. Global sourcing is critical to supply chain management as it enables companies to maximize operational efficiencies and achieve healthy profit margins, allowing more profit and investment to grow – in short, sourcing drives end-to-end From the total value of the end supply chain (not just unit price) to creating a global procurement process, supply chain managers must consider a myriad of factors.
For example, strategic sourcing decisions weigh logistics costs and transit times against raw material quality and pricing to develop an ideal sourcing strategy. This strategy must be aligned with and support the manufacturing operations strategy and the end-to-end supply chain strategy. Procurement leaders must also establish alternate procurement and logistics options due to the potential for supply chain disruption. We’ve seen delays and risks associated with severe supply chain disruptions in 2020, with procurement teams viewing risk differently as the world slowly responds to the health crisis.
Developing a global sourcing strategy means aligning a company’s risk factors, operational requirements and sales goals with the latest technology. Complex business problems require modern technology. Today’s supply chain professionals cannot build and monitor global supply chains using only spreadsheets. Emerging technologies such as artificial intelligence (AI) and big data enable innovative global procurement processes.
Supply chain managers will need to use the technology to monitor all moving parts. This could include weather forecasts, movement of container ships, efficiency of warehouse operations and inventory levels. Big data can help create demand forecasts and other predictive analytics. For supply chain leaders, harnessing the power of modern cloud technology to make better decisions is the secret to better margins.
What You Need to Know About Sourcing Supply Chain Components From Global Sources
To meet demand accelerated by e-commerce growth and shifting consumer spending behavior, major companies are diversifying and optimizing their sourcing strategies beyond domestic suppliers. Global sourcing of raw materials and products is a top priority as a solution to facilitate supply and production growth. But this also has its own risks.
When trade barriers rise in a country or a natural disaster knocks a supplier offline, an agile supply chain manager can leverage another supplier relationship to meet demand. Global supply chain management ensures manufacturing and deliveries are on time. Using some of the knowledge from the Global Supply Chain Institute white paper EPIC Global Supply Chain Risk Assessment, supply chain managers can better assess these global sourcing risks. The white paper lays out a framework for assessing countries based on Economics, Politics, Infrastructure and Capabilities (EPIC). By quantifying risks in 10 global regions, this paper helps supply chain managers develop sourcing strategies that maximize the benefits of global sourcing while managing risk.
Global supply chains also strengthen trade relationships between countries that exchange raw materials in large quantities. If a significant portion of a country’s economy depends on trade, this can be a source of positive pressure against destabilizing government actions that could lead to trade embargoes. Cross-border supply chains are a factor that incentivizes governments to maintain friendly relations, reduce tensions and generate tax revenue.
Responsible global sourcing also allows procurement professionals to source the highest quality raw materials at the lowest prices and with the highest operational efficiency. This creates the best total value for the business. Global supply chain management can also take advantage of skilled regional workforces, which can help drive product innovation and delivery. This global sourcing strategy can give your company a competitive advantage. Harnessing the labor of global trading partners also has significant macroeconomic benefits: global supply chains boost wages for workers in low-wage countries. Domestically, global trade also supports 39 million U.S. jobs.
Global Supply Chain Procurement What Supply Chain Managers Need to Consider
A successful supply chain manager always thinks several steps ahead to assess the risk of multiple variables simultaneously. Complexity and solution-oriented work make the field of supply chain management both exciting and demanding, which is one reason the labor market is in such high demand for capable supply chain professionals.
To create a value chain using global sourcing, you must create a resilient supply chain. Supply chain risk is top of mind for many companies, especially as the disruption caused by supply chain disruptions over the past year has taught us a lesson. In fact, concerns about risks in global supply chains have led to a reduction in global procurement over the past decade.
A key consideration for supply chain professionals specializing in global sourcing is building an agile supply chain with low-risk supplier relationships. Some of the most important factors to consider when developing a supply chain strategy for global sourcing include:
Develop the capability to manage risk in the supply chain.
Creating “on-demand” and agile capabilities among key partners is the most cost-effective way to mitigate risk. The first question is how to build the ability to provide reliable supply under any circumstances. Inventory should be the last resort to avoid inaccurate forecasts.
Sourcing components and products from reliable suppliers.
Building supplier capability is an important part of all procurement efforts. In addition to this agility and reliability of working, using different suppliers, sourcing raw materials or finished products from different regions can create a solid competitive advantage. When your value chain is too dependent on one country or region, your company is more vulnerable to supply chain disruptions, potentially disrupting order fulfillment and customer expectations.
Build supplier partnerships and relationships.
The pandemic reminds us that supply chains are only as strong as their weakest link. Today’s global supply chains are complex, with thousands of nodes and activities. A successful supply chain must have reliable and capable partners. Building positive relationships with your suppliers is good for business and smart supply chain strategy, even if you don’t work with them right away. If you build trust with domestic and global suppliers, they will be incentivized to overdeliver and step in to help overcome supply chain disruptions.
Adopt end-to-end supply chain management.
End-to-end supply chain planning is essential to any supply chain, but visibility into all elements of the supply chain is more challenging and even more important in global sourcing. Aspects of end-to-end management of global supply chains include demand planning, root cause analysis to identify weaknesses in the value chain, and planning for the human resources needed to create a resilient supply chain.
If global sourcing professionals follow these global supply chain sourcing best practices, you can minimize the risk of supply chain disruption. Of course, there is no way to completely eliminate risk. This is why companies value skilled supply chain professionals who can continually evaluate their sourcing strategies while considering other important factors in supply chain management: reducing supply chain costs, fulfilling orders on time, implementing responsible inventory management, and investing in Product Innovation.
Global Supply Chain Procurement Trends
A key trend in global supply chain management is addressing the ongoing supply chain risks posed by COVID-19. At various times since the start of the pandemic, outbreaks in some countries appear to be under control, while others have shown significant volatility due to partial and full shutdowns. It’s a testament to a strong sourcing strategy: While one major supply center resumes work, another could be shut down entirely by the coronavirus outbreak.
The pandemic has also disrupted transportation systems. Addressing the current reality of supply chain risk, researchers at the Global Supply Chain Institute at the University of Tennessee’s Knoxville Haslam College of Business warned supply chain leaders to expect some level of disruption for the foreseeable future. We see a trend toward more agile supply chains that can quickly adapt to emerging supply chain disruptions. Procurement will play an important role here.
Other key supply chain trends to watch include the continued emphasis on sustainable supply chains to minimize the environmental and human impact of raw and processed materials. Additionally, organizations are focusing more on diversity in sourcing to support communities that have traditionally lagged behind in global sourcing practices. Tomorrow’s supply chain leaders must prioritize ethical sourcing processes—from a human and ecological perspective—at the heart of their sourcing strategies.
The last item is less a trend than a welcome realization: There is a growing awareness of the importance of supply chain and procurement as a field. The global supply chain management challenges of today’s world put procurement teams in the spotlight. Procurement professionals can expect to see more opportunities for advancement as the Chief Procurement Officer (CPO) role carries more responsibility in many companies.
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