Global sourcing is a strategy that identifies the most economical location across the globe to manufacture any product, even if that geographical location is in a foreign country.

For example, a steel manufacturing company may find that raw materials and costs of manufacturing are cheaper in any foreign country or that labor is more affordable in that country. Therefore, it will cease its domestic manufacturing operations and establish a plant in that country.

The general sourcing process by reputed global sourcing companies can be described in five stages as follows.

Stage 1: Feasibility study, bidding, and investigation

In this stage, the company identifies its core and non-core business activities as well as strictly analyzes customer & market needs and identifies its competitors. This particular phase aims at defining the company’s business objectives, brand positioning, and intended markets.

The scope of strategic sourcing is outlined through a perfect business plan that is developed by executive staff & procurement specialists. The initial work strategy & baseline for measuring performance are carefully established & documented in the global sourcing process plan.

Phase 2: Assessment of Market & Supplier 

In this phase, the company develops a detailed list of suppliers from which it selects the best suppliers that can precisely meet its requirements. Based on the results of this process, the sourcing strategy may further be fine-tuned, and a costing model is presented. After that economic and operational benefits of the project are then estimated. Then, an RFI is sent to the shortlisted suppliers.

Phase 3: Supplier Selection

Based on the results of the RFI, a final list of suppliers will be chosen, and product negotiations will take place. A final supply contract will be signed thereafter. The final list of possible suppliers is technically assessed, and savings are estimated for each and every supplier. Finally, an implementation schedule was generated outlining the timeline for each supplier.

Phase 4: Implementation

After that company creates a performance analysis schedule drafting all pursuits in the implementation process, the implementation team should consist of all the procurement staff. The timeline & strategy should be publicly available. Agreements for resources, shared supply, and logistical arrangements will be developed.

At this stage, the expected external and internal results of the supplier should be documented carefully. Actual performance should be estimated and communicated regularly.

Stage Five. Performance Monitoring

The supplier’s performance is measured carefully, both independently and about the resources as well as processes used by the supply partner. This should also be done on a regular basis and reported on respectively. Thoroughly assess the effectiveness of working with a specific supplier. The partners continuously isolate problems and look for ways to lead them to improve performance.

Performance monitoring aims at maintaining the most effective sourcing process possible that is dynamic, flexible, and easily adaptable to changing market circumstances.

An extraordinary global sourcing strategy can address the following:

Cost – The primary purpose of a sourcing strategy is to take advantage of lower labor costs abroad. However, the purchasing organization will face supplementary costs that are not factored into the domestic transaction costs. In addition, these costs include freight charges, brokerage fees, insurance, duties, taxes, and bank charges.

Legal: All the contracting authorities & suppliers should consider which legal system applies to this contractual agreement, i.e., the direction of the supplier’s country, the law of the buyer’s country, or the law applicable under a treaty signed between the two countries.

Currency: Some buyers will also want to trade in their native country for the sake of simplicity. However, a judicious buyer will consider using the supplier’s money, as the money of the country of purchase may become more robust during the contract and delivery and final payment.

Delivery time: With global sourcing, delivery times are generally longer than with domestic sources. In addition, the reason is that travel overseas is slower except for air transportation. Also, it takes time during the customs clearance process, which is not correct for the domestic sources.

Culture and language: When sourcing agents are uncommon with the culture as well as the language of the supplier, the risk of miscommunication, misunderstanding, and offense or indignation dramatically increases.

Transportation: While domestic sourcing needs the use of one mode of transportation, global sourcing involves multiple transportation modes, for example, a combination of water or air transport with road transport so as to move goods from the supplier to your port, and finally to your manufacturing facility.

Payment methods: Global sourcing also involves payment by letter of credit, which needs cooperation between the buyer and the supplier’s bank. A good sourcing company in the USA can handle payment challenges as well as all other challenges that buyers face. Therefore, you can take help from these companies to ensure peace of mind.