Global Sourcing

Presented By: PRADEEP KHARVI MBA I - 6146

Department of Management Sciences (PUMBA), University of Pune

Definitions of Global Sourcing

Strategic procurement concept with an international focus. A cross-border search is conducted for suitable suppliers that meet specific quality, time and price requirements.

Definitions of Global Sourcing

Global sourcing is defined as the process of identifying, developing, and utilizing the best source of supply for the enterprise, regardless of location

GLOBAL SOURCING: ON THE RISE

There is no disputing that global sourcing is on the rise the U.S. alone imported more than $1.3 trillion worth of goods and services in 2001 most companies report a 10% to 35% cost savings by sourcing from low-cost-country suppliers But what exactly does global sourcing entail?

But what exactly does global sourcing entail?

Global sourcing entails identifying, evaluating, negotiating and configuring supply across multiple geographies to reduce costs, maximize performance and mitigate risks. Sourcing is also a cornerstone of total cost management (TCM), a technological and process framework for the optimal alignment, management and control of the total cost of ownership (TCO) of supply relationships.

But what exactly does global sourcing entail?

Every sourcing decision requires companies to balance the tradeoffs of cost, performance, and risk. However, these factors are heightened when sourcing globally because of the variability of non-price or "hidden" cost factors such as cross-border freight and handling fees, complex inventory stocking and handling requirements, and a multitude of documentation and regulatory compliance requirements.

Global Sourcing Factors

Global sourcing factors that must be understood and balanced can be segmented into six categories:
Material costs Transportation costs Inventory carrying costs Cross-border taxes, tariffs, and duty costs Supply and operational performance Supply and operational risks

Supply Manager Role

To understand and manage these factors, supply managers must stay abreast of tariffs, trade regulations and geopolitical landscapes that are constantly in flux. Supply Managers also required to have a solid understanding of the Harmonized System (HS) Code and International Commerce Terms (Incoterms).

HS Code
An HS Code is a globally accepted six- to 10digit number used to dictate the fees and restrictions associated with goods crossing a border. Globally, there are hundreds of thousands of HS codes, each representing a different tariff or potential trade restriction. International trade requires that these codes be assigned (i.e., "harmonized") prior to any goods crossing a country border.

International Commerce Terms (Incoterms)

There are 13 standard International Commerce Terms (Incoterms) that define the roles and responsibilities of buyers and suppliers for cross-border shipping. Each Incoterm assigns a different set of responsibilities, costs and liabilities to the buyer and the seller.

Labor costs dominate IT budgets; offshoring is a way to reduce these costs

Europeans Offshoring Everything

Low-Cost Service Delivery Drives Firms Decisions To Go Offshore

Europeans Cut Back on Internal and Contractor Staff

Offshore Providers Meet European Firms Expectations

Many services are offered: the Indians have moved up the value chain
Program Management Consulting Application services Infrastructure services Business process outsourcing
Architecture, IT strategy, process, quality, strategic sourcing Testing, app dev, maintenance, prod support

Monitoring, server mgmt., DBA, DT mgmt. Contact centers, collection services, KPO (research/analytics), mortgage processing, legal services, tax preparation, claims processing

Indian retail chains step up global sourcing

Global retailers like Wal-Mart and Tesco do it all the time. Now its the turn of Indian retail chains, whore exploring ways to step up global sourcing of merchandise for shoring up margins and offering the best price to consumers.

Indian retail chains step up global sourcing

These days, the likes of Big Bazaar, Ebony, Shoppers Stop, Westside or even Subhiksha are looking to source merchandise at the lowest rates globally. Future Groups Pantaloon Retail India has just set up global sourcing offices in Hong Kong and Mainland China the first overseas sourcing operation by any domestic retail chain.

Indian retail chains step up global sourcing

For retail chains across the globe, the world is becoming a single market. We are looking at markets across the world from where one can source merchandise at the lowest price. We have opened our global sourcing offices in Hong Kong and China a few days back, Future Groups chief executive officer Kishore Biyani told ET.
Retailers will be able to achieve economies of scale by setting up overseas sourcing offices, Spencers Retail president JH Mehta. This allows a big opportunity for retail chains to differentiate from competitors. While international sourcing currently accounts for 5% of our total pie, its growing at more than 50%, Shoppers Stop MD B S Nagesh.

Indian retail chains step up global sourcing

Ebony Retail Holdings CEO Lalit Kumar said the markets where Indian chains are focusing for bargains are China, Malaysia, Indonesia, Middle-East and Europe.
Popular merchandise include home decor, fashion accessories, furniture and consumer electronics. Much of it is also sold as private labels, added Mr Kumar.

Indian retail chains step up global sourcing

However, retailers are going slow in sourcing certain categories due to high import duties.
Though retailers are keen to source from low-cost production economies, a major impediment is the high duty structure in certain segments like apparel, Landmark COO Himanshu Chakrawarti.

Sourcing Plans India Retail

At present, nearly 90 per cent of Wal-Mart's procurement is from China. The retail chain had recently come to India to shop for leather products and booked initial orders worth around $100 million with five Indian companies. The government is also hardselling India as a sourcing base to retail chains like Tesco of the UK, K-Mart, Target Corporation, JC Penney and some global sports goods retailers.

Sourcing Plans - APCC

American Power Conversion Corporation, the US-based leading provider of global, end-to-end availability enhancement solutions, has drawn up a blueprint to turn its Indian manufacturing facility in Bangalore into a global sourcing centre for catering to its principals in the fastest growing Asia-Pacific region.
Though the wholly-owned Indian subsidiary is the third of its kind in the region, with the other two located in China and the Philippines, the parent company is already sourcing 60 per cent of Bangalore plant's production for its global requirements, thanks to the low-cost but high-value advantages the facility offers.

Sourcing Plans - MUL

India's biggest carmaker Maruti Udyog Ltd is toying with the idea of sourcing components from the global market as part of its strategy to become more cost competitive. "In Maruti, for example, we are looking to go in for worldwide procurement," MUL Managing Director Jagdish Khattar said in New Delhi. The sourcing of auto parts from the international market means sourcing components from the best and the cheapest supplier globally, he told an annual convention of the Automotive Component Manufacturers Association of India. Giving an example of 'opportunity share' mindset, he said, "There were four million two-wheelers sold three years ago. If we can upgrade 10 per cent of them to cars, there is an opportunity for 400,000 entry-level car sales this year."

References
Infosys Global Sourcing - http://globalsourcing.infosys.com/cases/case-studies.asp Cognizant - http://www.cognizant.com/html/news/cogcommunity/cc2006_euroPresent.asp Outsource World.com - www.outsource-world.com/newyork/pdf/Jim%20Murphy.pdf Wipro - www.wipro.in/resources/events/no2_+idc.pdf Accenture - www.accenture.com/NR/rdonlyres/928C5220-C4E6-4AAE-AEC9ED19731E25C0/0/Globalsourcinginpractice.pdf Rediff Economic Times Website (http://economictimes.indiatimes.com/)

Wikipedia
Forrester Research