Before You Pull the Global Sourcing Trigger …

I thought the five questions that JP Morgan's John Brockwell posed in his recent Supply and Demand Chain Executive byline were quite astute when it comes to global sourcing. Among others, one that really stood out was whether the "specific parameters and assumptions" of a particular transaction make it a good business decision. In my view, it's critical to look at the items that Brockwell suggests both individually and collectively. These include "payment terms, direct costs, delivery costs, planning, working capital, flexibility and quality." To this list I'd also toss it demand-driven exposure and risk (e.g., losing customers from lower-tier supplier labor or environmental practices which can often be challenging to completely identify upfront).

Another observation which I think is spot on from a low cost country sourcing perspective is developing what your exit strategy will be in each situation. As Brockwell notes, "take a page out of the risk management playbook of stock traders and poker players that understand high risk and high reward. Know before you award the sourcing how much you're willing to risk and when you'll need to get out." To this I'd add that while we all know it's smart to cut your losses and let your winners run, sometimes on the global stage, things can turn so quickly -- especially when it comes to supplier performance and risk issues -- that developing a proactive detection system and approach is akin to purchasing a financial hedge or insurance.

Jason Busch

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