As you may know, global sourcing can offer enormous financial benefits to your supply chain. But, as you’d expect, typical savings of between 40% and 70% don’t come with a snap of the fingers.
A few new processes must be considered, and a few new skills must be learned to ensure you stay on track and realize the full benefit of global sourcing.
1. Quality, Quality and Quality!
Studies show that at the front and center of people’s concerns when looking into global sourcing surround the issue of quality. And rightly so.
The concept of “quality fade” is the deliberate and slow degradation of quality that happens when manufacturers replace materials with cheaper alternatives to reduce cost and increase profits. Fortunately, there’s a simple weapon for the discerning supply chain manager to tackle quality-orientated issues when sourcing globally. And that is the third party inspection. To sign a “golden sample” and give to the third party inspection company, so for every new batch, the inspector will carefully check the products against golden sample, to notice any possible quality fade.
Once my client had a project of kitchen knives, after many repeated orders for two years, one day, the boss happened to have a returned product from a customer on hand, he was astonished as he found the knives are significantly narrower and thinner than he remembered at initial production, although all shapes kept the same. Unfortunately, his company did not keep golden samples so it’s difficult to argue with supplier.
After this case, the client came to us. We helped to source another factory and remade the moulds. After the client was happy with the initial samples, he signed off 3 sets of golden samples, one kept in his office, one at factory, and one at my company. Since that, my inspector always brought the golden samples to do inspection. It’s not only a concern of honesty, Chinese factories will regularly think about “cost reduction”, if no strict control and monitor, some will manage to reduce material usage or find a cheaper alternative. But they cannot do it if they know you are taking serious actions to monitor the quality.
An investment in a qualified, reputable third party inspection company ensures that you get what you pay for and can pay serious dividends in the long term.
2. Costs and time associated with travel to suppliers
When calculating the savings from a global sourcing initiative, it’s easy to look at the cash difference between your old supplier and your new supplier and ignore the rest. However, it’s important to realistically assess how much money you’re saving by including expenses such as time and travel costs to suppliers.
It might make your balance sheet look more attractive without considering these, but fail to do so at your peril.
3. Language barriers
It’s often worth spending just a little time learning one or two basic phrases of your new supplier’s language. When building a relationship with a foreign business, taking just a little initiative to learn common greetings in their mother tongue can have an enormously powerful effect on rapport.
Also, it’s important for you to be ultra-concise with your order, ensuring that every aspect of it is spelt out, leaving no room for ambiguity or misinterpretation.
4. Cultural differences
Embarrassing and relationship-damaging faux pas must be avoided at all costs in order to properly maximize the benefits of sourcing equipment or manufacturing globally. Take the time to learn the cultural differences in the nationality of your individual suppliers in addition to one or two nifty local phrases.
5. Tariffs and taxes on imported goods
Tariffs in this context refer to international trade tariffs, or the taxes placed on imported goods. To avoid nasty surprises that eat into your savings later on, ensure you work with qualified customs brokers who will not only give you the heads-up about what (if any) costs you’ll incur, but also about any necessary licenses or permits you might need.
6. Transportation costs and geographic distances
When it comes to the logistics, know your numbers. It’s worth having a handle on geographical distances in addition to how much the different transportation costs are. Typically, it’s cheaper and slower to use sea freight, although air freight is an option if you need something faster and are willing to pay extra for a speedy delivery.
7. Do your sums before you commit to the shipment
Ultimately, it boils down to properly doing your sums.
Don’t commit to anything until you’ve properly and realistically calculated any and all expenses associated with the additional distance for goods to travel through the supply chain now that you’ve taken it global.
