How to Minimize Risk of Global Sourcing?

How to Minimize Risk of Global Sourcing?

In this challenging worldwide economy, all types of businesses– small or big– need to make every effort to stay profitable and increase their return on investment. Sourcing from suppliers located all across the world is widely used for sustaining competitiveness in the market and maintaining profit margins for the businesses. Small businesses, as well as large enterprises, need to balance low-cost global sourcing with their own specific quality needs, as well as cost and risk analyses. Keeping the main purpose of global sourcing in mind by ensuring costing is realistic and includes all types of sourcing costs, such as transition, planning, and implementation costs. In order to stay successful and competitive in the global sourcing market, you should utilize these 5 best strategies:

  1. Manage product quality

The implications of quality failure from international sourcing firms are much more severe than a domestic source. With the time periods that comprise much longer distances and different time zones, it may take a plethora of months so as to correct the quality problem. Moreover, there are various quality issues affect the final supply chains. Low quality increases the rate of return from unhappy and frustrated customers, resulting in written off, discounted, or eliminated defective products (which also increases the costs and resources of the reverse supply chain, negatively affecting the reputation of your brand). In an ideal manner, the goal is to create an effective supply chain with optimum quality product around. There are many organizations that minimize this risk by a strict pre-quality check of the supplier by a  China procurement company. Approval & preparation of various detailed specifications of the product with the suppliers, for instance, the quality of labeling, raw materials, and packaging.

  1. Pay attention to the logistics

Transporting products across borders and long distances is complicated, and in logistics management, poor management decisions can lead to a series of problems and issues at a later stage. Even if we assume that the overall transportation costs have been placed in the feasibility research, there are a plethora of risks that must be planned and considered: loss or theft during the entire transportation process, including deterioration, piracy, or damage, increased lead times owing to delays and distances in communication due to various time zone differences. In addition to this, the need for interpretation requirements for the complex documents that may require consulting or research costs, for instance, permits, import restrictions, licenses, standards, quotas, and regulations. Large international purchases may need formal international purchase agreements, in addition to special procedures for Environment, shipping, and handling.

  1. Mind your monetary risks

Although the use of foreign suppliers can save costs & time owing to various factors such as proximity to raw materials and low labor costs, there are also various risks that can affect the costs such as high costs of delay costs, unexpected shipping costs, or loss of goods during the transportation process, such as contract management fees, document fees, external supplier costs related to time zone differences, audit fees, and additional time for delay in warehousing or transportation supply chain management costs. The more complicated the supply chain, the greater is the cost of managing international exchange rates which may result in Domestic devaluation into a good international sale of the finished product, but increased supply costs.

Small businesses, as well as large enterprises, whether importing agricultural ATV equipment or home appliances, need to balance low-cost global sourcing with their own specific quality needs, as well as cost and risk analyses.

4.Watch out for cultural and language differences

Cultural language barriers can complicate communications related to business, causing various problems such as incorrect orders and shipping delay. Misunderstanding can disrupt and frustrate business severely, making international sourcing a negative experience for different parties involved in the process. In addition to this, cultural sensitivity can also help mitigate this risk: research, as part of due diligence, country culture, how firms are managed, patterns of communication and basic societal values. You can also hire a global sourcing company or designate a buyer’s agent who can speak the local language and familiar with the country’s culture. You should also track cultural holidays in the sourcing countries.

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