Most businesses adopt global sourcing to gain a competitive edge in the market. While this is a huge growth opportunity– it also comes along with its set of challenges. The whole process requires a robust database that can support different purchase orders and the associated exchange rates. With the right software, businesses can efficiently manage procurement from international vendors to procure the best available resources.
This blog will cover basics of global sourcing, role of multi-currency and then move on to procurement strategies to help your organization get started.
What is global sourcing?
Global sourcing is a procurement practice that businesses follow to source products from international markets. Adopting this strategy enables businesses to access the best quality materials, bypass tariffs, and take advantage of the latest innovative technologies.
The main attraction for businesses is the ability to access low cost resources that are otherwise not available in the home country. According to the Westchester global sourcing program, the clinical team was able to source a digital thermometer at half the price. This is an excellent case of maximizing value and retaining standards for the healthcare industry.
5 Different stages leading to global sourcing
Businesses using global sourcing follow some basic stages of progression. This series of steps helps organizations collaborate better with vendors to set the required strategy in place. Here are 5 common levels of global sourcing:
1. Local sourcing
A business often starts its procurement process by buying from the domestic markets. This enables teams to familiarize themselves with what’s available in the local market, its prices and quality. Labelled as the most basic strategy, local sourcing eliminates additional shipping and handling charges.
2. International sourcing
The next stage is expanding to international markets to explore more options. Most businesses resort to this in case of local shortages, sub standard quality or lack of required products. International sourcing can act as a way for cost savings by providing access to cheaper items.
3. International procurement
Delving into a more formal process, international procurement involves putting together a strategy for the whole process. At this stage, a business can assess different suppliers, compare costs and set a vendor selection criteria. Here it is also important to take into consideration global roadblocks such as legal formalities, duties and regulations.
4. Central global procurement
At this stage businesses are working up a strategy to form contracts with vendors from different regions and warehouses. This stage requires coordination between stakeholders to finalize the terms of trade.
5. Global sourcing strategy
This is the highest level of the procurement ladder. At this stage, businesses start to implement their sourcing strategies worldwide while trading with multiple suppliers for the required products.
Top 3 benefits of global sourcing
Businesses dealing with global vendors develop an edge over the domestic competition. With the correct strategy in place global sourcing can help organizations achieve some major benefits, including:
1. New market opportunities
With global procurement, businesses can access a wide market to buy goods and services. This does not have to be limited to a single country. Globally trading enables organizations to be selective about their suppliers and choose the best available option, given their budget.
2. Cost savings
The majority of businesses opting for global procurement typically do so for the cost cuts involved. Cheaper labour plus raw materials can be easily substituted for the local options to save a lot of money.
3. Innovative technology
Organizations decide to source globally from countries with the latest cutting-edge technology, mostly in healthcare and IT. This enables the transfer of the latest medical equipment or IT devices to developing economies.
Role of multi-currency support in global sourcing and procurement
Buying products from multiple vendors means having to deal in different currencies by following the exchange rates. In order to set up multiple currencies for procurement, admins can invest in an inventory management system that caters to international vendors. Here are some ways setting up multi-currency for global sourcing can help your business:
1. Vendor management
Having a dedicated platform to record all exchange rates and related vendors at one place makes procurement convenient. Once a vendor has been associated with a currency, all purchase orders will be automatically generated in that currency– reducing administrative overheads.
2. Risk management
Currency volatility is a major concern in global procurement. Tracking multiple currencies in centralized inventory management software retains a comparison of the purchase order in both the local and exchange currencies. Whenever there is a sudden price hike, you can decide whether this impacts you. This gives you more control and acts as a transparent trail for audits.
3. Accurate cost analysis
For a business dealing with multiple currencies, it is important to track exchange rate fluctuations to provide accurate cost estimates. A good inventory management system enables you to edit exchange rates at the time of creating a purchase order. In this way, organizations can update pricing in real time.
4. Insightful reports
A multi-currency support system can be used to run in-depth reports to monitor costs in both the base local currency and the vendor’s currency– enabling precise decision making for global sourcing.
How to set up global sourcing and procurement for your business?
An organization setting up global sourcing for its procurement needs to thoroughly do its research for a successful strategy– to drive the decision to go international. Here are a few steps that can help a business set up its procurement at the global level:
1. Define sourcing objectives
A global procurement strategy needs to be built upon a robust foundation. This means that the business should be very clear about what exactly is the aim of the sourcing practice. Understand why there is a need to source globally. There can be a couple of reasons a business is looking for alternative supplier options. It can be cost efficiency, better quality, variety of options, or innovation.
The best way forward would be to pick the top objectives and then frame your strategy around it. Carrying out this practice will help in aligning overall business targets with the procurement plan.
2. Conduct market research
During a market analysis, a business can document tariff rates, trade policies, exchange rates, and political factors. Detailed insights on all these factors will help shortlist suitable options.
After finalizing the sourcing objectives, the next step is to carry out extensive market research. This way, businesses can look at supplier options available in the international market according to their requirements. For instance, if the main goal is to cut costs, then an organization can compile a list of suppliers that provide the same quality products at a competitive price.
3. Evaluate suppliers
Once the market has been surveyed, analyze suppliers and assess whether they will be able to provide resources to match your quality and pricing. Next, look at supplier performance, financial stability, capacity and ability to meet deadlines. After getting all this information, a business can decide whether the selected suppliers can provide the required products or services.
4. Build supplier relationships
The success of smooth global operations depends on the supplier- business relationship. For this reason, it is important to maintain mutual trust and strong communication with the supplier. Establish clear expectations from the supplier based on the terms and conditions stated in the contract. Doing so will provide clarity to the supplier and help in aligning goals to deliver quality products.
5. Set up logistics and operations
As a part of building supplier relationships, the next step is to plan global logistics and operations. Investigate local channels and integrate them with global supply chain mechanisms. Take into account factors such as customs, storage and transportation.
6. Implement quality control
In order to ensure that the products and services follow a certain standard it is critical to implement quality control protocols. It is a good idea to carry out a routine supplier audit to ensure that the products delivered are in compliance with the regulations. Moreover, quality inspections also help to identify any issues on time, minimize chances of defects and prevent recalls.
7. Evaluate and improve
The global landscape continuously keeps on evolving. To keep up with the latest policies and controls it is important to hold regular evaluations and improvements. Collect feedback from suppliers and end users to find out any roadblocks to solve them in a timely manner. Keep an eye on the tech and market trends so you can adjust your strategy accordingly.
Implement global sourcing with automated inventory management
Global procurement is a detail-oriented process that involves many stakeholders. With the help of an automated inventory system, organizations can store all vendor information and exchange rates to provide accurate cost analysis at all times.
The ability to create multi-currency accounts for global procurement is a game changer and enables smooth management of the supply chain. Businesses can keep a record of all costs, both in local and exchange currencies and track any fluctuations at a centralized platform. An automated procurement solution like EZOfficeInventory makes vendor management easier, allowing secure communication and coordination.Â
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