Global Sourcing

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Global Sourcing
2
Global Sourcing

• Domestic Sourcing
• Same Language
• Same Cultural/Ethical Expectations
• Same Legal System
• Same Banking System
• Same Transportation
• No Customs, Tariffs

3
Global Sourcing

• Why Look for Global Sources?
• Lower Total Cost (Landed)
• Access to Markets (Countertrade)
• Access to Raw Materials
• Access to Technologies
• Other Reasons
• Quality
• Competition

4
Global Sourcing

• Finding Global Suppliers
• Directories
• Trading Companies
• Embassies/Consulates
• Trade Shows
• Countertrade
• Logistics Issues
• INCOTERMS
• Other Logistics Costs

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Global Sourcing

• Problems With Global Sourcing
• Good Specifications
• Cultural Issues
• Language Difficulties
• Long Lead Times
• Paperwork
• Payment Issues
• Political Risk
• Currency Risk
• Security Issues
• Sustainability

6
Global Sourcing

• Methods
• Intermediaries
• Foreign Subsidiaries
• International Purchasing Offices
• Direct Purchases
• Inspection Services
• Customs Brokers and Freight Forwarders

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Global Sourcing Communication

• Understanding the True Barriers
• Speaking
• Reading and Writing
• Slang and Colloquialisms
• Two Word Verbs
• Vocabulary
• Conversational
• Business
• Technical

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Global Sourcing Communication

• Translators
• Local,
• At Destination
• Types
• Translating Written Materials
• Business Cards and Titles

9
Global Sourcing Payment

• Domestic Payment
• Payment Up Front (Avoid)
• COD
• On Account
• International Payment
• Payment Up Front (Avoid)
• Against Documents
• Letters of Credit
• On Account

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International Negotiation

• Age, Gender
• Status, Authority
• Formality
• Numbers and Team Composition
• Professionalism
• Yes and No

11
International Negotiation

• Silence
• Subtleties
• Deadlines
• Cultural Respect
• On Being Alone

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Make/Buy and Outsourcing
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Make/Buy

• Products We Never Make
• Products We Always Make
• In Between Products Make/Buy

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Make/Buy

• Industry Standards, Proprietary Products and
  Make/Buy
• Procurement from Suppliers
• Procurement by Manufacture
• Fluid Decision
• Revisit at Regular Intervals
• As Economic Conditions Change
• As Internal Conditions Change
• Always Maintain Internal Capability

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Reasons to Make

• Quantities Too Small
• Quality Too Critical
• Timing Too Critical
• Trade Secrets (for a time)
• Cheaper
• Keep Crew Busy
• Avoid Sole Source (perhaps)
• Union Shop
• Unreliable Supplier

16
Reasons to Buy

• Quantities Too Large
• Supplier Quality Acceptable
• Have Sufficient Lead Time
• Lack of Necessary Competencies
• Lack of Capacity
• Cheaper
• Reciprocity

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Vertical Integration

• Cost and Responsiveness
• Insure Performance
• Scheduling
• Control
• Boeing

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Outsourcing

• Strategic Decision
• Activity is Not Core Competency
• Will, In Future Completely Depend on Suppliers
• Will No Longer Maintain Internal Capability
• Management of Outsourced Activities

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Outsourcing

• Our Core Competencies
• Suppliers Core Competencies
• Dependence on Suppliers
• Strategic Vulnerability
• Technology Transfer
• Source from Competitors Suppliers
• Supplier Exploitation
• Price Creep
• Service

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Outsourcing

• Firms Rethinking Outsourcing
• Rising Wage Rates
• Rising Transportation Costs
• Currency Exchange Rates
• Long Lead Times
• Recent Survey (Global Retail Goods Firms)
• 50 of firms in survey are considering moving out
  of China
• 26 actually doing it

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Supplier Selection
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Supplier Selection

• Types of Purchases
• Industry Standard
• Custom Assemble from Common Parts
• Custom Manufacture from Common Materials
• Custom from New Technologies

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Correct Transaction Cost
Total trans. cost
Cos t s
Logistical cost
Material cost
Admin cost
Transaction origin
Transaction conclusion
Time
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Typical Measured Costs

• Material Cost
• Service Cost
• Administrative Cost
• PO Cost
• Receiving
• Accounts Payable
• Freight

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Costs Typically Not Measured

• Back Orders
• Late Deliveries
• Defective Material Costs
• Costs of Rejected Goods
• Prodn Stop Costs
• Project Delay Costs
• Air Freight

• Cost of Warranty Failures
• Extra Inventory Cost
• Services Incorrectly Performed
• Invoice Errors
• Highly Variable Lead Times
• Freight Damage

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Time delay
Invoice errors
Cost overrun
Freight damage
Cos t s
Total trans. cost
Raw material delays
Specification questions from supplier
Transaction origin
Time
Actual conclusion
Expected transaction
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Who Pays?

• It All Depends On What You Negotiate

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Criticality Grid
High Patent M Prop Tech A R K E T
Ind Std Commodity Low
Low High
INTERNAL Volume, Importance
Volume, Pervasive
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Criticality Grid High Market

• Sole Source
• High Market Concentration
• High Price Volatility
• High Supply Industry Capacity Utilization
• Patented Product
• Proprietary Technology

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Criticality Grid Low Market

• Industry Standard Items (Some Differentiation)
• Commodities
• Non-proprietary Indirect Supply Items
• Many Substitutes

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Criticality Grid Low Internal

• Little Use
• Low Volumes
• Unimportant Technology

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Criticality Grid High Internal

• High Volume
• High Dollar Expenditure
• High Price Sensitivity
• Pervasive
• Key Operating Characteristic

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Criticality Grid Managerial Objectives

• High
• Patent Look Ahead
  Strategic Alliances
• M Prop Tech
• A
• R
• K
• E Market Driven
  Market Driven
• T Min Admin Cost
  Supply Continuity
• Ind Std Automate
  Operational Alliance
• Commodity
• Low
• Low High
• INTERNAL
• Volume, Importance Volume, Pervasive

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Criticality Grid Contract Applications

• High
• Patent Look Ahead
  Evergreen Agreements
• M Prop Tech
  Strategic Alliances
• A
• R
• K
• E Petty Cash
  Multi-Year
• T Purchase Cards
  Systems Contracts
• Ind Std Blanket Orders
  Operational Alliances
• Commodity
• Low
• Low High
• INTERNAL
• Volume, Importance Volume, Pervasive

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Review
36
Review

• Legal Issues
• Ethics
• Supply Strategies
• Commodity Strategies
• Supplier Strategies
• Specifications
• Supplier Selection

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Questions, Comments, Observations,
Conclusions,Arguments?