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Techniques for an Effective Global Sourcing Strategy

Global sourcing refers to seeking goods and services beyond one’s borders, i.e., from the global market. It is a procurement strategy in which companies try to find the most cost-efficient place globally for manufacturing goods. According to purchasing and procurement professionals, companies should be able to source both inside and outside their national borders. They are then subsequently better able to compete. Most companies choose a global sourcing strategy because costs are lower abroad. Either labour costs or raw material costs are lower. Often, both raw material costs and wages are lower.

Strategic Sourcing
Picture extracted from http://yelom.myphonecompany.co/strategic-sourcing/

Make or buy analysis

In some circumstances, it might make sense for a company to manufacture a product from sourced raw materials or components. In others, companies might find it more profitable to pay another company to perform the manufacturing process and then sell the finished product. The decision about whether to make or buy is not always an easy one. Companies must examine the following factors in order to make the most cost-effective choice:

• Cost

If the goods or services are to be produced in-house, companies must consider the costs associated with labour and other capital assets. In some cases, the capital assets might be better used in some other way. If a supplier will be manufacturing the product, companies must factor in the costs of dealing with the supplier and correcting any errors to ensure quality control.

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Teddy Oh Sing Yie, DPSM
Teddy Oh Sing Yie has substantive years of experience in the field of procurement management, and specifically in the Flavour Manufacturing Industry. He is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Teddy Oh completed the Diploma in Procurement and Supply Management (DPSM) course on September 2018 at SIPMM Institute.

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