Global Sourcing vs Local Sourcing
In today’s supply chain, local sourcing is gradually transforming into global sourcing of raw materials, components, and manufacturing. Businesses have been connecting with third-party suppliers abroad for years. The manufacture of goods that facilitate global trade are scattered across global supply chains with numerous facilities.
Global sourcing also brings new supply chain management issues that can change on a daily or hourly basis. Today, it needs to get production partners up and running as early as possible to avoid shortages and spikes in demand. Production may be scaled back in the future if demand changes. Such adaptability is difficult to achieve, so supply chain leaders must understand global conditions. With a strategic perspective on global sourcing, more informed decisions can be made at the end of international sourcing.
What is Global Sourcing?
Global sourcing is one of the most important responsibilities of running a supply chain. Having a global supply chain is essential if you want a supply chain that spans the globe. This is different from international sourcing, which only focuses on sourcing and managing a global supply chain between two countries.
For example, if an automaker in Michigan buys floor mats from Canada but manufactures the rest of the components domestically, it is an international supply chain. Global sourcing is different; it is a complex supply chain with a global focus. The automaker gets brakes from China, engine parts from Japan, and some parts manufactured in Mexico.
The ability to operate across borders is critical to achieving the profit margins that make a company successful. Global sourcing is critical for supply chain management as it will allow companies to improve operational efficiency and achieve healthy profits, make more money and invest in expansion.
It’s worth reiterating that there are two types of purchases: short-term and long-term. The total value of the supply chain (not just the unit price) is determined by purchasing activities. Supply chain executives must consider several variables to establish a global procurement process.
Pros and Cons of Global Sourcing
The main advantage of global sourcing is cost savings. International sourcing enables many foreign manufacturers to offer services at very competitive prices, especially in regions where products are typically produced at low cost. Lower manufacturing costs will allow businesses to buy goods in bulk at lower prices, ideal for start-ups and businesses on a budget.
In a global supply chain, you’ll find that low cost is just one of the many benefits you get when sourcing products internationally. Let’s take a look at some of the extra benefits you can get from sourcing products from overseas manufacturers.
Advantages of global sourcing:
* Rich product variety
* Unique and rare products can attract more customers
* Greater choice of suppliers
*Can support smaller MOQ
* More sustainable and stable supply capacity, making it immune to supply chain problems caused by natural disasters
*Learn overseas procurement experience and provide a stepping stone for developing new overseas markets
*Overseas manufacturers can save a lot of costs.
While the benefits are great, everything in life has pros and cons; this also applies to global sourcing. Here are some common pitfalls that can arise in international sourcing.
Disadvantages of Global Sourcing:
*The technical standards of products provided by overseas suppliers may not meet the requirements of your country
*Restrictions such as quotas and tariffs may affect imports and exports on both ends of the transaction
*Documentation requirements for cross-border processes can be time-consuming and complex
* Currency exchange rate fluctuations
*Long delivery time
What You Should Know About Importing Global Components into Your Supply Chain
Large organizations are diversifying and improving their procurement procedures beyond local suppliers to meet growing demand driven by trends in e-commerce and consumer spending. Global sourcing of raw materials and products is a top priority to mitigate supply growth. But there are some specific risks with this approach.
When trade barriers in one country rise or natural disasters wreak havoc on a supplier’s operations, another supplier relationship can be used to meet demand. Global supply chain management ensures that manufacturing and deliveries remain on time and on track. Supply chain executives can better assess these global sourcing risks by using some of the insights from the Global Supply Chain Agency white paper EPIC Global Supply Chain Risk Assessment.
The white paper provides a framework for assessing countries based on economics, politics, infrastructure, and capabilities (EPIC). The document helps supply chain managers gather information on risks in ten global regions and develop sourcing plans that maximize the benefits of global sourcing while minimizing risks.
Global supply chains also help strengthen trade links between countries that exchange large amounts of raw materials. A significant trade component of a country can be a favorable source of pressure against political change, leading to a trade embargo if it relies primarily on international trade. Cross-border supply chains are one of the many reasons why governments want to maintain good relations, minimize tensions and raise taxes.
Globally sourced products also enable procurement specialists to obtain the highest quality raw materials at the lowest prices, while maintaining optimal operational efficiency. This will bring the most effective overall value to the business. Global supply chain management can leverage competent local people to facilitate product innovation and delivery.
By purchasing from all over the world, you can gain a cost advantage over your competitors. A global sourcing approach can give your company a competitive advantage. Global supply chains boost the incomes of people in low-wage countries by using workers from international trading partners.
Global Supply Chain Sourcing Trends
COVID-19 is the most important driver of global supply chain management reform. Ongoing risks posed by COVID-19 are being addressed with a focus on improving surveillance and mitigation capacity. Some countries appear to be free of the disease, while others have experienced major unrest due to partial and complete shutdowns over time.
The pandemic has caused widespread traffic disruptions. Academics from the University of Tennessee’s Global Supply Chain Institute and the Knoxville Haslam School of Business advise supply chain executives to prepare for some level of disruption in the foreseeable future while assessing current supply chain risks. We are moving towards more flexible supply chains that can easily adapt to emerging supply chain issues. The purchasing function will play an important role here.
Other important supply chain developments to watch include continued focus on environmentally responsible supply chains to minimize the consequences of raw and processed materials.
In addition, businesses are placing greater emphasis on sourcing diversity to help communities that have historically been overlooked by global sourcing operations. Future leaders must place ethical sourcing processes among their top priorities. Sourcing strategies are viewed from a human and ecological perspective.
The last item is more of a welcome revelation than a trend: the growing recognition of the importance of supply chain and procurement as an industry. Today’s global supply chain management issues highlight the importance of purchasing teams.
When looking for suppliers or manufacturers, you can source from local companies or go global. There are pros and cons to both approaches, so to help you understand the key differences between the two, we’ll explain why you might want to keep something local and when to take advantage of a global supply chain.
What is Local Sourcing?
Local sourcing refers to sourcing products or materials from manufacturers in the home country. Instead of going to an international supplier, you choose to buy from a local manufacturer.
Shopping locally usually comes at a price. Choosing to invest in a manufacturer in your home country can be more expensive than investing internationally. However, local sourcing may also be easier and faster.
If you need a quick turnaround, it might make sense to source from a local supplier who can produce the product and deliver it within a certain amount of time, rather than worrying about shipping times.
Pros and Cons of Local Sourcing
Finding local suppliers can help your business save time and money. Here are some of the main reasons you might consider sourcing from a local rather than an international manufacturer.
The advantage of local sourcing.
*Local Sourcing is great for PR, it allows you to showcase your investment in your local community
*Local sourcing enables you to see exactly what you pay as you travel to suppliers for development, management, and on-site inspections.
* Sourcing specialty products from local suppliers just got easier as you can visit them regularly to explain your requirements face to face.
* Shorten the supply chain and increase the predictability of lead times.
There is an argument that more businesses should support the local economy by sourcing products and services from local manufacturers, however, the reality is that this is not always possible.
Each country has its own resources and expertise. Even overseas, sourcing products from quality and reliable manufacturers is important for business development. When your country is not as skilled in developing the products your business needs, trying to source locally puts you at a disadvantage and causes problems in the process.
While local sourcing is great for public relations, here are some of the main reasons why international sourcing may be the best option.
Disadvantages of Local Sourcing
*Close ties with local suppliers may lead to ethical issues when selecting suppliers.
*If you terminate the contract with the local supplier, it may generate bad publicity locally.
*You may not be able to find quality products in your country.
*Economic impact in your country may affect delivery and supply chain.
*You may be resistant to change, especially if you need something innovative.
*The supplier you choose may depend on you as their main source of income.
All in all, whether it is global sourcing or local sourcing, it is best to choose the one that suits you best.