Global Sourcing

Global sourcing is a procurement strategy aimed at exploiting global efficiencies in production. While a global sourcing process is usually initiated as a mechanism of exploiting cross-geographic arbitrages (simply put, identifying cheaper global sources), it is now a standard step in the global expansion of firms. Global sourcing advantages extend to identifying alternate supplier sources, utilizing buffer capacities and taking advantage of specific geographical talent pools. China dominates the global sourcing directions of most firms, particularly for those based in the United States and Europe. However, near-shore sourcing destinations such as South America and Eastern Europe form significant second-tier markets. International procurement organizations (or IPOs) are essential elements of the global sourcing strategy for any firm. These procurement organizations take primary responsibility for identifying and developing key suppliers across sourcing categories and help satisfy periodic sourcing requirements of the parent organization. Such setups help provide focus in country-based sourcing efforts. Particularly in the case of large and complex countries, such as China, where a range of sub-markets exist and suppliers span the entire value chain of a product/commodity, such IPOs provide essential on-the-ground information. Over time, these IPOs may grow up to be complete procurement organizations in their own right, with fully engaged category experts and quality assurance teams. It is therefore important for firms to clearly define an integration and scale-up plan for the IPO. Low cost country sourcing Low-cost country sourcing (LCCS) is a procurement strategy in which a company sources materials from countries with lower labour and production costs in order to cut operating expenses. LCCS falls under a broad category of procurement efforts called Global Sourcing. The primary principle behind LCCS is to obtain sourcing efficiencies through identifying and exploiting cheaper global sources between geographies.

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