When it comes to procurement, manufacturing inventory abroad offers some clear advantages over sourcing product at home. Whether you're a scaled up multinational importer or a small retailer looking to unlock some small cost savings, there's a good chance that you'll procure at least some of your product from abroad. But what about the risks? And could you get a better deal at home?
Why Source Globally?
Most consumers imagine that retailers primarily choose to source overseas to reduce per unit costs. This is true for a wide range of retailers – margins vary, but goods produced in a lower production cost market can cost a fraction of what it would cost to produce at home. On the other hand, some imported goods are more expensive, either because they’re produced in a high cost country or because import regulations and tariffs drive up the price.
What many commentators don’t appreciate is that businesses also import to improve product quality or consistency. This is particularly the case for businesses that operate in several countries – it often makes sense to carry out inventory manufacturing in a single country if possible.
What Risks Do Importers Face?
One of the largest challenges importers must deal with is timing issues. If your supplier is halfway across the world, they're sleeping while you're doing business. Distance can make communication difficult, particularly when something goes wrong and an answer is needed urgently. Another way that distance can cause timing issues relates to lead times; if your inventory doesn't turn up on time, what is the potential impact on your business?
Importing can also involve language issues, although suppliers in major inventory manufacturing destinations are increasingly investing in English speaking staff. Cultural differences can still affect relationships with suppliers; engaging with local culture remains valuable.
If your transaction is a one-off deal, suppliers have a lesser incentive to deliver on time and to specification. Holding international suppliers accountable is not always straightforward.
How Can Importers Make Global Sourcing a Success?
Businesses that choose to work with overseas suppliers should factor in longer lead times. If you operate a lean supply chain, substantial planning is required to make sure you can rely on suppliers to consistently deliver at the last minute.
If you're relatively new to international sourcing, it can help to have a trusted person on the ground in your chosen import market. This person can carry out quality control, resolve urgent queries and maintain the relationship with your supplier. In addition to a local agent, you should also use an escrow agent to minimise the risk of the supplier taking the money without delivering your inventory.
Successfully sourcing from overseas typically also means carrying out some inventory manufacturing at home. On some types of inventory local suppliers may be able to compete on price and lead times, so it's worth getting a quote locally from time to time.
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.