Industry Spotlight: Global Sourcing

Global sourcing is no longer a fad or short-term trend. It is an integral part of how manufacturers do business, for one simple reason. Companies facing intense competition—like all manufacturers—cannot afford to limit their searches for quality, cost-effective sources of supply to local markets.

02/01/2009


Global sourcing is no longer a fad or short-term trend. It is an integral part of how manufacturers do business, for one simple reason. Companies facing intense competition—like all manufacturers—cannot afford to limit their searches for quality, cost-effective sources of supply to local markets. They must find the best possible suppliers, regardless of location. However, recent global economic events have shone a spotlight on the need for manufacturers to exercise greater caution when selecting suppliers. Here we offer global purchasing managers food for thought.

IT platforms:

A number of software vendors offer tools to help manufacturers master the art of global sourcing. Some of the most notable suppliers are:

  • Ariba , with its suite of “spend-management” applications, including an on-demand (or SaaS) option. It also manages the Ariba Supplier Network, an online meeting place for buyers and suppliers.

  • MFG.com has an online marketplace for connecting buyers and suppliers.

  • Management Dynamics sells global trade management software.

  • GT Nexus offers on-demand solutions for global trade and logistics management.

  • QAD is an ERP software supplier whose product set includes global trade management and supply visualization capabilities.

The user experience:

Despite current economic uncertainties, Bostig Engineering , a Boston-based supplier of automotive engine converter kits, is continuing with its global sourcing strategy. Company President Jim Akiba says reliance on the MFG.com marketplace gives him confidence that he can consistently locate the best suppliers. Bostig Engineering, like all buyers on the MFG.com site, posts RFQs and then selects a list of countries it wants to receive bids from.

“The import process is more complicated than sourcing from the U.S.—you need to have plans in place for what to do if a supplier lets you down,” Akiba says. “But the actual act of sourcing couldn’t be simpler: you just choose the countries you’d like to hear from, and click.”

George Krizanovic, president of Antioch, Ill.-based North End Tool Manufacturing , a producer of stainless steel surgical machined instruments, has been both a victim and beneficiary of the global sourcing phenomenon. Three times, North End Tools has lost machining contracts equivalent to 50 percent to 80 percent of sales to overseas competitors. After working to restore those revenue streams—albeit from different customers—Krizanovic is now seeing market trends working in North End’s favor.


“Buyers are far more aware of the costs of managing overseas suppliers, and much more attuned to the costs of potential quality issues,” he says. His conclusion: “You don’t compete by being cheaper than China—you compete by being better than China.”

Axiom Manufacturing Services , an electronics manufacturing service provider based in the U.K., has noticed customers rethinking their sourcing strategies. “Companies are looking afresh at the costs of engineering support involved in Asian manufacture—and the associated travel and communications costs—and deciding to make that investment selectively,” says Steve Wilkes, the company’s commercial director. “Products with volatility—either in demand, design, or volume—are tending to either come home, or not being done overseas in the first place.”

Geopolitical awareness:

Some manufacturers are finding it beneficial to monitor global trade agreements and, in effect country shop, when seeking the best sourcing arrangements.

“Opportunities to take advantage of preferential trade agreements are continuously coming up, and the astute manufacturer takes full advantage of these,” asserts Sean Scarbrough, president of Trident Worldwide , a Kansas City-based provider of global trade consulting services.

Recently, manufacturers attuned to this strategy have been sourcing textile products from Bolivia, Colombia, Ecuador and Peru, following the enactment of the Andean Trade Promotion and Drug Eradication Act, which links tariff removal to progress in drug control.

By viewing a country’s—and supplier’s—trade and tariff implications as part of the sourcing process, it’s possible to fully leverage the opportunities offered by preferential trade agreements, points out Wayne Slossberg, VP of sales at QuestaWeb , a vendor of integrated, Web-based global trade management software solutions used by Trident Worldwide.

One QuestaWeb solution allows users to tap into up-to-the-minute information about global trade agreements. Vendors such as Management Dynamics, J.P. Morgan ’s Global Trade Services; QAD, and Oracle offer similar applications.



Advantages

Boston-based Aberdeen Group says companies typically realize 10 percent to 35 percent cost savings by sourcing goods from low-cost countries.

In a recent survey of users of the MFG.com online marketplace, 61 percent of respondents said their global sourcing programs were achieving cost-cutting goals.

Disadvantages

Long lead times for parts delivery, with the potential risk of port shutdowns or other incidents that could cause further delays or supply interruptions.

Potential loss of intellectual property, and difficulty in monitoring suppliers’ compliance with quality specifications.