Global sourcing occurs when companies go beyond their home borders for sourcing goods and services. There are many benefits to doing so, but there also are risks involved, we have identified five major risks and some ways to mitigate them.
Having a supplier on the other side of the world often means that they are sleeping while you are working and vice versa. Often you can lose precious time waiting for answers to questions. A solution to this is to have someone in the country of sourcing – even if it is an agency, an in-country representative or employee who can anticipate questions and ensure that communications with your suppliers include all of the necessary details from the beginning.
It could be that suppliers are not fluent in your language, and then suppliers may not be comfortable asking for clarification on multiple times. To avoid misunderstandings, have in place follow up discussions with written confirmation of what was agreed. A good idea for some communications is to use templates so information is always presented in a consistent way and one that is easy to understand. Also having important documents professionally translated and then sending the translated and the original document for cross reference can be a huge headache saver later.
Quality expectations when relying on overseas suppliers is important to note. Generally, you will not know of any quality problems until orders have arrived. To prevent this, one way is to conduct quality inspections before the products leave the country of origin or to train suppliers in how to comply with your quality standards. One way to do this is to create a quality control methodology and let the suppliers know how to use this, and holding them accountable for following this.
Production scheduling is vital for any business. When an order is late, you may need to pay a penalty to your customer by shipping by air to expedite freight. Understanding lead times not only for finished products but for components of raw materials is critical to help you anticipate and avoid costly delays. To mitigate this, identify alternatives like paying for overtime and working with back up suppliers to alleviate bottlenecks.
Many things can and do go wrong between the time an order leaves a factory and the time it arrive at its destination. Ensure your supplier has a contingency plan in case of loss, delay or damages that each party is held accountable. Having a sound logistics partner that offers numerous service options can be helpful. One way to do this is by earning security certifications from custom authorities at the origin and destination to help reduce the likelihood of time consuming shipment inspections.
The key to global sourcing success lies in you doing your homework in advance. Know what pricing you need and the quality, product specifications, and timeline that will fit with your overall strategy. By identifying these common risks aforementioned you can help alleviate any problems that will arise when outsourcing from overseas suppliers.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.