The global village connects more people from around the world than ever before. In theory, everyone in the world can communicate with anyone else in the world. Of course, connections apply to the global market, with suppliers in Brazil able to win contracts published by the UK’s public sector.
The official term for these international eSourcing and eProcurement deals is global sourcing (or global eSourcing). We’re going to take a closer look at how global sourcing affects public sector procurement, from benefits and challenges to best practices.
To Be Clear …
Global sourcing refers to international procurement in the private and public sectors. Buyers identify and research suppliers in other countries to determine if they are sufficiently suitable to become part of their globally sourced supply chain.
The purpose is to exploit global efficiencies and secure cost savings in manufacturing through cost-effective operations, cheaper labour, more skilled workers, and cheaper materials.
Global suppliers might also have better performance records, which speeds up the procurement cycle, shortens the time to market, and reduces costs even further.
5 Levels of Global Sourcing
There are five levels of global sourcing, starting in the domestic market and working up to the top of the global market.
Level 1. Domestic sourcing. It’s not global. Instead, it’s a starting point for those who are new to public procurement. This is where they cut their teeth, gain experience, and earn the right to transcend to level two.
Level 2. International sourcing. Public sector buyers make their first forays into global sourcing, but only when necessary (not common practice). It’s a good time to expand operations and extend reach in the domestic market.
International sourcing provides a taste of some of the benefits of global sourcing benefits, like tax breaks and low production costs.
Level 3. Global purchasing. The sourcing strategy is a healthy mix of domestic suppliers and global procurement. The arrangements are more formal and have greater value.
It’s a good point to conduct more research in global markets, including compliance, regulations, penalties, low trade tariffs, and tax implications.
Level 4. Global procurement strategy. Here, you focus more on the global market, incorporating global sourcing into your overarching procurement strategy.
Integration, incorporation, and coordination become increasingly important, not to mention management, so you can keep track of multiple suppliers’ progress.
Level 5. Global sourcing and integration strategy. Strategic procurement goes global. You balance several international trade partners at different points in the sourcing process.
Open communication, transparency up and down the supply chain, the latest in eSourcing and eProcurement technology, as well as identifying new suppliers and building and maintaining business relationships take on greater significance.
5 Benefits of Global Sourcing
Global sourcing has many advantages over and above domestic sourcing. Let’s look at five benefits.
- Diverse suppliers. A supplier pool with multiple suppliers, both foreign and domestic, has plenty of benefits on its own. For example, with so many sources at your disposal, you have your pick of the best suppliers for the correct project.
Supplier A and Supplier B supply more or less the same products/services/works, but Supplier A’s materials are a touch better quality and more suited to the big contract that’s just been published.
Operating globally also increases buyers’ reach by enabling them to access a much wider range of new suppliers in new markets.
- Cost savings. The global sourcing market is highly competitive with many suppliers vying for a competitive edge. This gives buyers negotiating power to get the best products or services at an affordable price.
- Skilled workforce. Suppliers in different locations provide unique skill sets that buyers can use to fill various niche contracts.
Buyers also have access to high-quality products that aren’t available locally. They can set high-quality standards because many potential suppliers can’t wait to do business with them.
- Resilience. Having multiple suppliers means that you aren’t dependent on just one or two sources. You have alternatives should something serious happen to any one of your supply chains; financial and political risks, bankruptcy, natural disasters, exchange rate fluctuations, etc.
This also makes sense from risk management and mitigation standpoints, because you’ve stored your eggs in different baskets.
- Innovation. Collaboration, relationships, and competition all contribute to a culture of innovation. There is one-upmanship which encourages (friendly) competition and innovation among suppliers.
Innovation is also driven by collaboration among suppliers with different ideas, procurement processes, and available technology.
5 Global Sourcing Challenges
There’s no escaping the fact that there are global sourcing challenges. Let’s look at five of the biggest challenges that plague global sourcing.
- Regulations. Different countries have different regulations, laws, and compliance requirements. Buyers who source globally must be aware of these differences and take steps to ensure that they have an in-depth understanding of international business practices and are 100% compliant with local laws. Failure to comply can result in severe penalties.
As a result, public procurement professionals must ensure that they are current with the relevant tariffs, quotas, documentation, and total costs of operating across international borders.
- No quality control. Above we said that access to quality products and services is an advantage, and it’s true. However, there is the risk that global suppliers’ services might not make the grade.
Thorough research before contracts are signed should identify suppliers whose quality standards are lower than required.
Your global sourcing strategy should have a quality control plan in place that includes quality spot checks by neutral third parties to ensure that quality standards don’t slip.
This should keep suppliers on their toes, but procurement professionals can terminate the contract if suppliers regularly fall below the required standards.
- Political risks. Ideally, research should identify countries with an unstable political situation or a potentially unstable situation. These are to be avoided at all costs.
However, sometimes there’s a sudden event that tips a country or region over the edge and supply chains are interrupted by export embargoes, factories are vandalised, and staff could be threatened if they go to work.
Global sourcing strategies must have a risk management element that
- Language and cultural differences. Language and cultural differences are a problem when procurement contracts are awarded to vastly different countries; for example, a department in the Welsh public sector awards a contract to suppliers in Fiji.
The suppliers could be absolutely perfect for the job, but their cultures couldn’t be more different. There is the risk that either party could be offended by something the other party does.
Language differences might require a translator but even skilled translators can’t always convey the nuances in communication.
Buyers must research the countries and companies they want to work with so that they know what’s required to avoid language and cultural faux pas and misunderstandings.
- Time zones. Often public sector procurement contracts are awarded to suppliers in countries that have a convenient geographical location. This could include neighbouring countries or those that are a hop, skip, and jump away by air, ship, or land. This type of international trade significantly simplifies imports and exports and communication that requires immediate replies or actions.
As soon as contracts are separated by several time zones, immediacy is not so immediate and communication has to be carefully scheduled to fit into the most convenient overlapping time. If it’s not done correctly, it can result in frustration that could grow to biblical proportions, which ruins global supply chain management.
5 Key Considerations And Best Practices For Global Sourcing
1) Supplier identification and selection are crucial.
The processes are very time-consuming and not a viable option for many procurement buyers. Some public sector departments have limited budgets and can’t devote the time and resources necessary to thoroughly analyse potential suppliers. In this case, it’s a good idea to outsource the process to an agency or third party with experience in the field.
Many tasks in this particular aspect of the global sourcing process can be automated, which saves time and labour costs. Procurement cycle management software and high-tech platforms can generate reports on suitable suppliers, as well as remove the risk of human error.
Research and global sourcing selection best practices include:
- Quality. How good is their performance history?
- Cost. Everything from pricing structure to value for money.
- Reliability. Does the supplier have a reputation for delivering contracts on time and budget?
- Compliance. Is the supplier compliant with local laws and regulations that govern their country’s standards, as well as the buyer’s own?
- Capacity. Do new suppliers have the correct equipment, staff, and wherewithal to meet the contract’s requirements?
2) Ethical sourcing and business practices.
A supplier’s ethics play an important role in global sourcing. These days, it also includes social value, so buyers must ensure that potential suppliers comply with the regulations.
Procurers must include the following in their global procurement strategy and ethical sourcing policy:
- Suppliers using materials from countries known for modern slavery, sweatshops, and child labour should raise a red flag.
- Suppliers using fossil fuel-intensive business practices without even a passing nod to sustainability and environmental awareness should also raise a red flag.
- Suppliers who don’t consider the welfare of the local community should get the boot.
- Suppliers using discrimination in the workplace should also get the boot.
- Suppliers that don’t meet buyers’ sustainability and social value requirements should be shown the door.
3) Digital transformation in international procurement
In a digital age, buyers should shift their global sourcing business operations to the cloud. They can use digital portals or platforms to publish contract notices and vet suppliers according to set criteria. Automation tools publish notices, as well as awards and can automatically send all applicable documents to contract award winners.
Digital platforms play a key role in global supplier management, including analytics analysis, report generation, and real-time data updates. Platforms have features that manage all the mundane, time-consuming tasks, which frees staff to build upon their skill sets and enhance their roles in the international market.
Furthermore, the platforms conform to new transparency requirements as set out in the upcoming Procurement Bill. Transparency at every level of the supply chain ensures fair business practices and even encourages supplier collaboration.
4) Risk management
If you want to weather changes that negatively impact supply chain efficiency, you must ensure you are well prepared. A risk management strategy is the best way to identify and prepare for potential risks.
In global eSourcing, risk management includes supply disruptions, like a potential shortage of raw materials. Look for financial risks, like consistently making a loss and being micro millimetres away from bankruptcy. Diversification (a wide supply pool) is one way to mitigate this risk.
There are also political risks as mentioned above, environmental risks as mentioned above, and something not mentioned above … risks related to natural disasters.
Are suppliers’ headquarters based in a flood area, do hurricanes wreak havoc on physical premises? It’s not that you can’t award contracts to suppliers facing these risks, just that you make provision for worst-case scenarios.
5) Data security
Data security is important no matter what sector, industry, or field you’re in. However, it’s a touch more important when it comes to public sector and government contracts. Buyers must comply with data protection regulations and ensure that all sensitive data is safe from cyber-attacks.
Many public sector software includes cybersecurity tools, but there’s always the option of purchasing separate software dedicated to cybersecurity for specific protection.
What To Expect From Global eSourcing In The Future
Online eSourcing and procurement change rapidly as the market evolves. Public sector buyers must be able to change with them. Forecasting is one of the best ways to prepare for the future, so what changes and trends are on the horizon?
Change management strategies.
With so much change going around, buyers need a clear strategy that enables staff and stakeholders to cope with an ever-changing landscape.
A strategy on a global scale needs to include open and transparent communication about contracts, address resistance and enable staff to adjust to change. Buyers’ chances of global sourcing success also depend on the flexibility to adjust operations according to real-time data.
Plan for emerging markets.
There’s comfort and security in sticking to the same suppliers in the international market. But many exciting new suppliers are coming up the ranks from countries you might automatically dismiss.
For example:
- Southeast Asia is getting a reputation for affordable manufacturing (investigated for ethical business operations).
- Eastern Europe is getting a reputation for its skilled workforce, not to mention its proximity to other European markets.
- Africa is becoming a growing market for global eSourcing. Many countries have left political unrest behind and are focusing on stable economies and increasing their exposure in the international market, especially in agriculture, textiles, and technology.
Supplier collaboration.
It’s one of the biggest benefits to come from the new Procurement Bill. The new procurement platforms, with their focus on transparency, create a perfect environment for suppliers to communicate easily with each other, exchange information in real time, and generally contribute to networking and relationship building.
All of this is a recipe for innovative collaboration, which increases suppliers’ capacity, skills, products/services, and ability to meet requirements in higher-value contracts. This increases competition and suppliers looking for competitive advantages are always good for buyers who want the best products and services at the best price.
Simplify The Complexity Of Global eSourcing
This is an enormous amount of information to absorb, let alone go ahead and implement global sourcing strategies.
You needn’t tackle it on your own. Many agencies and companies today provide expert services that include supplier management and collaboration on joint ventures. They can take on the entire process or just the aspects that are the most important for business operations in the public sector.
Delta eSourcing provides a range of global sourcing services that include eAuctions management and its Dynamic Purchasing System. Get in touch with Delta to find out more about the benefits of global sourcing by contacting them directly through the Contact Us page. Alternatively, book a free demo to find out more about how to create an effective global sourcing strategy.
