Sourcing internationally, especially to China and other low cost countries (LCC’s) involves a lot of strategy, ‘rolling up sleeves’ and is much more than just managing the concept of ‘purchasing’. Global sourcing involves all aspects related to helping make the product ‘happen’ on time, on budget, and with quality standards good companies have come to expect.
By signing international sourcing agreements, executives put their name (and their company) on the line. Decisions to manufacture company products half way across the globe are not made lightly.
When sourcing offshore or overseas, more often than not, supplier and buyer management can be comprised of significantly different cultural backgrounds. Additionally, foreign management may also have quite different business objectives and, sometimes, may even employ business ethics that could be deemed questionable.
For instance, in the global electronics contract manufacturing sector, some Asian companies have been known to access new roads of business by virtually giving away the assembly portion of a potential OEM customer’s hardware outsourcing program in exchange for exclusive rights to source material and components for the OEM’s product bill of materials (BOM).
Many North American and European electronics contract manufacturers might see this as unethical, but in the grand scheme of things, this demonstrates the extent to which suppliers may go in order to gain an edge over the competition in the increasing competitive world of outsourcing.
Below are several points of interest international sourcing managers should consider if they want to increase chances for global sourcing success.
1. Familiarize yourself with local social and business cultures. Lack of familiarity with foreign social and business cultures and, communications issues that surface based on differences, are the biggest reasons international sourcing activities fail, particularly in Asia.
2. Establish clear communication channels with functional departments and management levels at your company corporate base. You must be in a position to be able to address and deal with issues within your company at the corporate level while developing a cooperative team to address offshore or outsourcing issues that will arise. If top management is not behind you, your job will be more difficult.
3. Source from within your geographic region, first, if internal prototype and pilot production capabilities do not exist. Mexico or other mid-cost regions, such as Taiwan, can come into play afterward — until product manufacturing matures – before moving production to China (or other low-cost regions) and then, only if it makes sense to do so.
Too many companies find themselves in a deep hole after sending teams of engineers, quality assurance personnel, and other staff on extended trips to low-cost regions after a design or product quality issue surfaces during production. This type of reactive activity can send total cost of ownership (TCO) through the roof.
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4. Understand basic technical aspects of items and products to be sourced. This does not require you need to be a design or software engineer. However, you should at least have a basic, working understanding of components; subassemblies, and finished products you are sourcing.
5. Identify suppliers in low-cost regions carefully. This should be followed by rigid procedures involving supplier qualification (including design, quality, production, and financial capabilities) of potential suppliers at their factory sites (not supplier corporate offices). This also involves verification of relative ISO and other international standard certifications.
Additionally, the process should include potential supplier qualification for subcontractors (e.g., plastics, metal, and critical components not manufactured or produced by your direct product supplier).
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6. Develop a working knowledge of contracts. Be able to negotiate not only price but also payment terms, return or repair compensation, and safety or buffer consignment inventories, to mention a few items key to good supplier contracts. Of noteworthy mention, many Asian companies working together do not have thirty-plus page contracts.
7. The curse of 10-day supplier visits. Avoid the temptation to try and evaluate eight suppliers in ten days. Such business trips are penny wise and pound foolish. International trips to Asia can seem exotic but they are tiring, the jet lag is a real contention to deal with and, in general, companies should plan on spending two days (maybe more) with each potential supplier in order to properly assess capabilities (i.e., design, quality, production, financials) as well as the working chemistry of senior management.
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