KEYWORD: competitiveness
In this article, we would highlight and discuss mistakes, in particular, 7 of them, that are commonplace in global sourcing. The objective is to gain a deeper understanding that would enable you to make qualitatively better decisions.
It may be relevant to mention that global sourcing is a process, which involves time and money, in addition to which, it poses several challenges. Still, businesses pursue this strategy for the reason it provides cost and competitive advantages and as a result making it a worthwhile proposition, if conscious efforts are made to avoid the mistakes.
Global sourcing is not the same as international purchasing
It is common to mistake them to be identified in an interchangeable manner, because of using the term so but global sourcing involves coordinating and integrating materials, processes, designs, technologies, and suppliers worldwide and hence it is not just purchasing in various operating locations.
Global sourcing is not only a starting point for logistical activities but is also a part of strategic managerial activity, which involves evaluating quality, quantity, the price. In essence, global sourcing calls for a long-term strategy, whereas international purchasing relates to daily activities most of which are routine in nature carried out to support the various departments within the firm.
Inadequate/ill-defined strategy
From the previous, it emanates that strategy forms a vital element of sourcing. It is necessary to apply at least four tactics,
- (i) vetting and validating the suppliers,
- (ii) ensuring of supply capabilities of the vendors,
- (iii) determining the quality control metrics and applying them rigorously, and
- (iv) determining the sourcing methods.
A faulty strategy can cause chaos to your business, which can wipe away the margins or result in losses that can prove costly.
Not having a written contract
A business deal without a contractual obligation is like getting a promise in water that gets dissolved soon, leaving without any traces.
When there does not exist a written down contract, you forego your legal rights, as a result of which, the contracted parties can get away without executing terms, breach of trust causing liabilities that cannot be made good.
Viewing global sourcing merely as cost-savings
This is a fundamental error because a myopic focus on savings limits the global sourcing to one-dimensional thinking, resulting in opportunities foregone.
The laser focus on costs makes one turn a blind eye to business continuity. On the other hand, savings should be related to other matrices as the likely outcome on EBITDA, operating margins, etc.
Excessive reliance on automation
With the technological advancement that has taken place, it is natural for any business to rely on software but here lies the danger of outright automation being detrimental to your sourcing functions. The serious flaw of automation is, it does not pay attention to organizational changes.
Given the external risks global sourcing is subjected to, automation may offer inaccurate assessments because it does not take into account such invisible factors as trust and commitment, which cannot that easily be quantified.
Cultural Insensitivity
Sourcing involves negotiating with persons who hail from different cultures. It calls for the ability to meet challenges, at times, unknown, which calls for cross-cultural communication abilities. When cultural sensitivity is not adopted, it can result in cognitive biases resulting in distorted thinking and action, especially, in those cases where either the guest or the host faces the ‘language barrier’.
Fortunately, English is still the business language and it is better to carry on the communication, even if it is in ‘broken English’ as it is considered to be better to an English is spoken/written with profound accents, or complex terms.
Ignoring business disruptions
An indelible lesson, which Covid19 has taught businesses is the havoc that could be caused to a large number of businesses that have not put in place risk-mitigating strategies in their sourcing operations.
Besides the enormous health and economic costs the outbreak has brought on the business and eco-systems, the shortage of materials, as for instance, ‘chips’ has disrupted the functioning of businesses.
While calamities of this type may not take place always, yet it is essential for businesses that are dependent on sourcing is putting into place a ‘disaster management system’, which could be resorted to mitigate the ill effects.
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Conclusion
The practical utility of this piece is that it would help you practice ‘smart sourcing’, which is an effective and efficient way to maintain reliability and resilience. It would facilitate your overall success in business.
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Keywords:
SOURCING, BUSINESS, global sourcing, RESULT, STRATEGY, INVOLVE, TERM, AUTOMATION, ACTIVITY, PURCHASE
