Is Global Sourcing Worth It?

April 30th, 2008 at 07:11am David Bush - Iasta

Supply & Demand Chain Executive recently ran an article that asked Global Sourcing: Is It Really Worth It? Given ever increasing material and labor costs, a declining dollar, rising fuel prices, and increased risk, it’s a good question!

The article listed the following advantages of global sourcing:

• cost, especially w.r.t. unit & labor costs
• access to fresh research, design, or specialized intellectual capital
• availability of new technology and capacity
• supports plans to sell or service locally
• proximity to raw materials
• quality

However, there are a number of disadvantages as well. Although not specifically mentioned in the article, they include:

• cost – transportation, export, and import costs add up!
• quality
• risk
• proximity to raw materials
• lack of a skilled workforce

As the article points out, whether or not global sourcing is right for you depends upon the category, market conditions, and other alternatives you have at your disposal. This is determined by asking the right questions. The questions in the article are a good starting point. They are:

1. What are the specific parameters that would make global sourcing a good business decision? Be sure to consider:
   • payment terms
   • direct costs
   • delivery costs
   • planning process synchronization
   • working capital
   • flexibility in production & capacity
   • quality
2. What are the macro-economic and geopolitical assumptions that could impact this decision through the lifetime of the contract? Be sure to consider:
   • direct costs
   • potential fluctuations in inflation and currency exchange
   • geopolitical environment
   • supply chain risk
   • special trade preference programs
   • government requirements
3. How do we monitor these assumptions for change? Be sure to consider:
   • timely monitoring of customer demand w.r.t. forecasts
   • available sensing mechanisms to detect changes to raw material, labor, & energy costs
   • dramatic shifts in currency exchange
   • pending legislation or current court cases that could challenge assumptions
   • pre-shipment quality issue identification
   • early identification of potential delays
4. What are the alternative supply sources? Be sure to consider:
   • key materials and / or components
   • transportation providers
   • ports of exit and entry
5. What is the exit strategy? (In case things go really wrong.)

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Entry Filed under: General, Global Supply Issues/Risk