Global sourcing, overseas buying, international trading? The terms are used interchangeably and all relate to buying products/services from a country other than the one in which you are based. Global sourcing usually attracts procurement professionals and other industry workers due to the perceived saving of money.

Why Source from Overseas?

  • Access to a wider market
  • Access to expertise and technology
  • Lower prices

That said, it’s important to consider the difference between price and cost. As explored in our blog on Achieving Value for Money, the cheapest option doesn’t always deliver the best long-term value.

Global sourcing more often than not delivers a price saving – but at what cost?

Risks and Considerations

When buying from overseas, it’s essential to think beyond the price tag. Key risks include:

  • Exchange rate volatility
  • Extended lead times
  • Cultural, language and time differences
  • Different accepted standards of ethics and working conditions
  • Political unrest
  • Larger carbon footprint
  • Quality concerns
  • Lack of control
  • IPR risk
  • Extended supply chain equating to more management required

A Real Scenario

Consider the scenario where you are tasked with sourcing a new CAPEX (capital purchase) such as a new machine for your business. Having sent out your RFQs (requests for quotations) or ITT (invitations to tender) you have received quotations and bids back.

The quote that stands out is from an overseas supplier offering a price that is 20% lower than all the home country quotes.

An unskilled procurement professional would place the order at the lower price thinking they are making the best choice. This choice has not taken into account the fact that the currency may fluctuate and become unfavourable, that the lead time may be far too long, and the machine may not arrive when needed. It is possible that the supplier cannot speak the language of the procurement organisation, making queries and conversations challenging. The machine has to be flown over from the other side of the world, is this transport cost included in the quote? What effect will this have on the company’s carbon footprint?

So, Is Global Sourcing a Bad Idea?

When all the above are considered it is likely the cost of sourcing from overseas becomes much higher than the cost of sourcing locally.

Of course, each situation in different and if the item being sourced is not available from the home country, global sourcing has to be an option. Similarly, if economies of scale, expertise, or innovation is achieved from an overseas supplier this makes the deal more attractive.

There is no ultimate right or wrong decision when considering global sourcing. However, we must always consider the fact that there are more aspects to quote and bid on when sourcing from overseas. Without reviewing all of them, a comprehensive and fair decision on which supplier to use cannot be made.

This blogpost was written by Katie Jarvis-Groves,  If you are interested in taking the next step in your procurement and supply career, explore our range of CIPS qualifications or contact our team to find out more.