Strategic sourcing has become an extremely important element to the growth of any company. In order to stay competitive, companies need to constantly ensure the right level of coordination between innovation, organisational efficiency, price policy and procurement.
There appears to be a growing trend towards global sourcing; companies are constantly seeking to find the next low cost procurement option in order to gain an advantage over its competitors.
However there is a second narrative; local sourcing. Recently, more and more arguments are springing up about the immense benefits associated with sourcing locally. This narrative therefore begs the question; is local sourcing not the better option?
We will take a critical look at both sourcing techniques and see which option will better serve our organization’s procurement needs
Arguments against global sourcing
- Transport costs
With transport costs growing and with constantly changing demand patterns, organisations need to find smarter ways to become more responsive to customer needs and in a cost effective manner.
In recent times, oil prices have seen significant rises in price; reaching an all time high of approximately US$147 per in July 2008. While the prices have recently crashed to approximately US$60, the longer term price curve is likely to continue in the upward direction and it is worthy of note that for every one dollar rise in oil, there is a corresponding increase in the costs of transportation. Therefore, unless there are new discoveries of ways to go around this, prices of things will continue to rise.
- Supply chain risk
There are also several risks that are inherent in extended supply chains that are detrimental to the growth of any business. Risks such as;
- Extended lead times
- Exchange rate risks which affects products pricing
- Variable lead times in the supply chain, leading to a high level of uncertainty and inconsistency.
- Loss of control
- Reputational risk
- Loss of agility
Extended supply lines usually have adverse impacts on both time-to-market for new products and the responsiveness of suppliers to customer demand changes. Organisations are unable to quickly respond to significant changes in the market due to the extended lead times. Likewise these extended lead times tend to make organizations unjustifiably exploit larger economies of scale thereby leading to overstocking of supplies which also affects their response time to market innovations.
Global sourcing’s increased need for transport has also impacted negatively on the world’s carbon footprint. Globalization only ends up exporting domestic carbon footprint to countries elsewhere and at an increased rate
There is an increased risk in the loss of intellectual property rights as there is often less legislative protection or enforcement in developing countries
The argument for Global Sourcing
The rising trend towards global sourcing is probably an inevitable on due mostly to man’s natural instinct to trade, seek options, explore alternatives and find new ways of doing things. Coupled with recent advances in communications and technology, it appears as if global sourcing practices have only just begun to shape the procurement world.
Some of the arguments for the huge importance of global sourcing practices include;
- We need Global sourcing to sustain our way of life
The constant rise in world population and the diminishing rate of resources to cater for this growing population has largely impacted the need for globalization in trade (procurement) and all other aspects of human endeavor. Nations who are in deficit will continue to look to other nations where items to be procured are in surplus and are readily available.
- The most sustainable option may not be the obvious one
Local sourcing may appear more sustainable but there are a number of documented cases where global sourcing has been found to have less impact on the environment. Conditions such as favorable weather conditions, vegetation, technology, availability of labor and work ethics might actually have significant positive impacts on manufacturing and production thereby leading to less carbon footprints than when sparsely produced
- Innovation can provide the solution to issues arising from global trading
It is highly possible to use innovative technology to combat the environmental challenges of global trade. Significant advancements in technology in most industrialized markets have aided the creation of breakthrough energy solutions which offers a new model for bringing lasting energy solutions that are reliable, affordable and doesn’t emit greenhouse gas. This trend has facilitated the growth of global industry.
Today there are thousands of individuals and companies across the globe working hard to harvest different kinds of clean energy in order to change the way we produce goods & services and in many cases, these experiments have been very successful.
- Global Sourcing Promotes Peace
There is also an interesting argument that global trade promotes peace among nations. Nations that trade together are unlikely to go to war with each other.
In arriving at a decision on what sourcing strategy to adopt, the points listed above need to be taken into consideration when comparing between global or local sourcing strategies. Whether local or global, neither of the two are inherently right or wrong, it is only a matter of carrying out careful analysis of both sourcing techniques with respect to your company’s procurement needs and selecting that which is more suitable to meet those needs. Wrong sourcing decisions can cost you valuable time and money