A Publication of WTVP

Enticed by low-cost, offshore manufacturing and a desire to penetrate emerging markets, companies have experimented with offshore supply since the 1980s. But for all the hype, many companies that have engaged in an offshore strategy have been disappointed with their results.

The most effective way to avoid disappointment is to develop a long-term strategy with clearly defined goals and then drive execution through a structured management framework. Part of this framework is a global sourcing methodology.

Most global project teams are temporary and are unable to sustain a consistent, long-term approach. Therefore, a structured methodology is critical to maintaining consistency and continuity across teams and initiatives. A focused, well-communicated strategy is needed to successfully qualify suppliers, negotiate agreements, and achieve cost benefits.

Qualifying foreign suppliers is a leading challenge for purchasing organizations. It’s critical to maintain consistent supplier qualification measures. When evaluating overseas supplier capabilities, engineering and manufacturing standards often are overlooked. These capabilities may be overshadowed or substituted by more cursory parameters, such as regional political stability, financial viability, and product fit—items considered “givens” by NA and EU customers. Developing effective supplier qualification is the linchpin to successful global sourcing.

While supplier qualification is key to successful global sourcing, supplier cost competitiveness is the yardstick by which suppliers are measured. Once a pool of qualified suppliers is defined, stakeholders must conduct a comprehensive financial analysis of the true costs and benefits of sourcing to emerging markets. These decisions must be driven by a detailed understanding of the total costs involved.

Sourcing decisions must be based on an evaluation and understanding of critical cost categories, as manifested in global supply markets. These categories include material, labor, cross-border taxes and tariffs, transportation, supply chain performance, inventory carrying, and risk management.

As globalization drives the development of new supply and demand markets, purchasing resources continually need to develop their global economics understanding. Changing areas such as tariffs and geopolitical circumstances increasingly drive strategic buying decisions. Organizations must understand the impact of these drivers on their company’s profitability and take informed action.

Emerging market sourcing also changes the role of logistics professionals. Due to the cross-border nature of these activities, logistics managers increasingly are critical to emerging market sourcing success. They constantly must evaluate the best supply chain configuration as emerging market opportunities mature and shift.

In conclusion, a long-term sourcing strategy with a supporting management framework is key to sustaining a successful emerging market source of supply. Understanding emerging market supplier capabilities; accurately measuring total, landed costs of sourcing to emerging market suppliers; and driving the necessary changes through the organization ensures success in developing a sustainable emerging market sourcing strategy. IBI