INTERNATIONAL BUSINESS: Homework on Global Sourcing

December 1, 2006
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Wouldn't it be nice if lower costs were really just a click away? You go to a search site and enter the product or part you want to buy, a list of qualified suppliers appears, and you submit an RFQ. Then, a few days later, you receive a perfectly clear and thorough quote from a company that is destined to be a long-term supply partner to your company.

While we're at it, we might as well expect the personal profiles in those matchmaking websites to be completely accurate and, hence, an efficient shortcut to romantic bliss. (Not that I have any direct experience with that kind of thing. I'm just basing my comments on what others have told me. By the way, does anybody know how to use that software that allows you to alter photographs? Not that I have any interest in such matters; a friend wants to know.)

Considering the size of the U.S. trade deficit, you would think that working with foreign suppliers would be old hat to most U.S. firms. Yet the fact is that foreign sourcing, particularly what is referred to as "low cost country" (LCC) sourcing, remains new and challenging to many companies, even as experience in this regard is becoming increasingly important.

Since helping companies source in China is a key part of our business, I thought I'd use this month's column to make a few suggestions based on our experience. Specifically, I will focus on a few key issues that many companies overlook but are absolutely essential to realigning your supply base.


When is the last time anyone compared your company's drawings to what your current supplier is providing? Do you have a reasonable baseline to evaluate a new supplier? Can you trust your internal standard costs? What resources do you have to devote to the evaluation of material substitutions and possible minor design changes? How will you evaluate a supplier's ability to maintain quality and delivery?

These are just some of the issues you will face if you want to make substantive changes to your supply base. It's relatively easy to get a purchasing person to e-mail drawings and collect quotes. It's another thing to gather all of the information necessary to allow all relevant parties to sign off on a major decision that could affect product quality and production continuity.

Many companies don't have much of a formal procedure for changing suppliers. If your company is one of them, you might want to give that some serious thought before you embark on an LCC sourcing program. As you consider the process and all those who need to sign off on a decision, the resources necessary to get the decision-making point will become clearer.


Processes and resources are one thing. Commitment is another. Lack of the latter can render the former immaterial. It's not uncommon: Senior management designates a goal. Purchasing/sourcing gets cracking. Everyone else is either indifferent or hostile to the idea. Heat is generated, but nothing really gets done, resulting in discouragement and more opposition. If you're really unlucky, the process begins again so as to produce an increasingly frustrating circle of failure.

Is there anything more cliché‚ than to say that a major initiative in a company requires leadership at the top and commitment throughout to succeed? Well, I'm not trying to be original here-just accurate. If your global sourcing aspirations are more talk than walk at this point, it's probably because leadership has not aligned the organization behind the goal. You might want to start with that if you want to give the whole thing a boost.


A global supply chain manager recently told me that he is trying to convince his company that its commitment to spending time with customers (who doesn't want face time with customers?) should be extended to suppliers (conversely, does anybody ever visit a supplier unless a specific problem has to be solved?). What a brilliant idea!

The fact is, if you are going to do business with the world, you are going to have to get to know the world. That doesn't mean you have to go native, speak the language and wear the local attire. It certainly doesn't mean you absolutely must have offices in all four corners of the globe or a team of specialists crisscrossing the world continuously. However, it does mean that personal relationships and a thorough knowledge of the operating environment (remember that your supplier's operating environment is, by definition, part of your operating environment) are, as always, crucial to your business. To put it another way, as your foreign sourcing expands, your knowledge of foreign sources (business conditions, practices, trends, etc.) should expand as well. Otherwise, you leave yourself exposed to factors you haven't identified.

This may sound difficult and time consuming. It is a little of both, but it is necessary and worth the effort. What do you have to do? The specifics will vary for each company. The main point is to build organizational understanding of your expanded supply base. Exchanging e-mails with the supplier is only the beginning. Phone calls are a step in the right direction. Personal visits help. Inviting suppliers to visit you also helps. Attending trade shows doesn't hurt. Anything you can do to create the same level of comfort, regardless of whether the supplier is down the street or on the other side of the globe, you should try to do.

As usual, I've picked a topic that requires a chapter and have tried to fit it into a much smaller space. I'll have to pick up this topic again next time. While this column focused on preparing your internal organization, next time we'll discuss some of the supplier-related issues you'll need to address.


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