The Three Phases of Global Sourcing

When companies take the global sourcing plunge, I've observed they often do so in three phases. The first I'd describe as "cost obsessed". During this adolescent stage, procurement organizations and executive teams often become obsessed with unit cost savings or the "China price". The second stage I'd describe as the "total landed cost" phase. This is when companies get serious about bringing goods in based on a landed cost savings (factoring in inventory carrying costs, logistics, tax, tariffs, trade finance, etc.). The third and final phase of global sourcing -- let's call it the "mature" one for lack of a better term -- is marked by a focus not only on total landed cost, but on quality and supplier performance. But few companies have reached this stage of global sourcing enlightenment today.

Recently, Purchasing featured a story that examined some of the challenges companies face as they pursue quality and supplier performance in a global environment in metals categories. Above all, my key take away from this piece confirms my own experience in that quality is not something companies should take for granted (but often do when they’re just getting started). How important is quality to global sourcing efforts? According to Purchasing, "quality continues to be the Achilles' heel in the low-cost country sourcing of metal forgings, castings, stampings and fabricated parts." But quality and on-time performance should be the primary concern for companies looking globally, as "the lower prices obtained in emerging markets often are offset by increased costs and performance issues that moderate the net benefits that companies actually achieve." Too bad few companies think about this before plunging head first into the global sourcing pool.

Jason Busch

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