Thanks to technology and the work of early pioneers, international sourcing has become more accessible than ever before. However, this does not mean it is free from peril as well as promise. From political and currency instability to quality control and intellectual property, there are various factors any international sourcing strategy must take into consideration for the company to be successful.
International sourcing is about a lot more than just finding the lowest production costs. Any company focused only on the bottom line will likely miss out of the most important opportunities and may do more harm through sourcing than good. All the positive benefits must be kept in mind so that they can be properly pursued.
Advantages of international sourcing
Companies looking to source overseas often want to sell there too. By sourcing from other markets, they can learn about the tastes in these markets and develop the contacts who will make their products more accepted there.
For larger companies, international sourcing can be a way to “follow-the-sun.” For example, when engineers in one time zone retire for the night, those in another may just be reporting for work. This keeps projects moving 24/7.
It also brings companies closer to materials and new sources of capacity. Instead of transporting raw materials to be worked elsewhere, it may make sense to work them nearer the source. This also may be a way around government quotas and other regulations that do not make economic sense. Sourcing allows capacity and resources to be accessed much more efficiently.
The meeting of the minds that sourcing offers can pay off in ways that are not easily measured. Different cultures bring different ways of thinking. Sometimes a problem can be solved quite easily with something as simple as a new perspective. This melding of cultures, ideas and technology can be the greatest benefit of international sourcing.
There are of course the direct cost savings that international sourcing can bring through access to cheaper labor and the like. However, it is also important to be aware of the drawbacks that may outweigh the benefits in some cases.
On the other side of the coin
There aspects of international sourcing that can work both ways or against it. Having an international supply chain can be both a plus and a negative. On one hand, it opens up a world of possible new suppliers if there are disruptions in a region. At the same time, it makes the supply chain more susceptible to a greater number of potential problems from political instability to natural disasters.
Sourcing out work invariably leads to the need to share ideas, strategy and intellectual property. Be it intentional or not, this can lead to ideas being stolen and competitors finding out their rival’s strategy. A balance has to be found between the need to share information and build a proper working relationship with not revealing too much.
Quality control is one of the biggest problems that will arise with international sourcing. While there are cases were outside quality standards may be higher, it is often a battle to make sure quality standards are maintained with foreign suppliers. Although quality may not matter as much with cheap products not designed to last anyway, mistakes made in products like electronics can lead to huge headaches. The needs and expenses in monitoring quality control overseas, with extra business trips and personal on the ground, can sometimes make the costs of producing there more than the savings in labor and other expenses.
Strategies to make sourcing a success
International sourcing requires extra monitoring in areas that may not have been needed in the past. For example, following foreign currency exchange markets becomes much more vital Changes in the value of currency can offer huge challenges and opportunities that those sourcing must stay on top of.
It is also important to follow international events to anticipate problems and have contingency plans, including an exit strategy, when appropriate.
For both human rights and image concerns, companies need to take steps to monitor suppliers to ensure that are not abusing workers or doing other things that could bring bad press or put a company on the wrong side of the law.
Quality control is a huge concern in many sourcing operations, and a strategy to monitor quality must be established. For a variety of reasons, it is often very difficult to get sourcing suppliers to understand the need for quality. Until they do, constant monitoring will likely be required that may make sourcing in some situations impractical.
Be it a lack of quality or other reasons, there needs to be alternative sources ready for times when one supplier can no longer be used. Keep channels open to use these suppliers as needed. Avoid relying on any one supplier too much.
In spite being a great tool, international sourcing is not always the way to go. Every company needs to find the level that is best for them and use sourcing for all its advantages when they do.