Global sourcing and purchasing is standard practice today, but it adds new complexity to supply chain management in terms of freight, cost management, logistics, compliance, and various risks. Managing these factors upfront means not waiting for problems to develop.
— By Shaniqua Thomas

Global procurement decisions go far beyond simple material purchasing decisions. The flow of foreign-sourced components, raw materials or finished goods through a global supply chain must be synchronized between supply chain partners and comply with government export/import requirements at home and internationally. The total cost of ownership also becomes more difficult to identify and manage due to the use of multiple freight carriers and factors influencing the timely delivery of goods and materials, including meeting frequently changing international and U.S. Customs and Border Protection (CBP) regulations.

There are significant risks at every point in the global supply chain, and mitigating risks is critical to managing costs, meeting production and inventory needs, and satisfying customer expectations.

Wanted: New Skills Set
A global supply chain requires a new skills set for procurement professionals. Once focused mostly on finding and buying the best materials and goods at the least price with the nearest supplier able to meet needs, best practices must now consider things like complex and ever-changing trade agreements by country, coordination of freight and cost minimization, changing market conditions that impact current or potential international suppliers, reliability of suppliers (especially those providing critical items), and quality control.

It is much easier to manage a domestic purchase than one from a country thousands of miles away, requiring the movement of goods across borders and careful logistics planning. Doing the research and putting controls in place up front can reduce the risk of failed deliveries, goods stuck in port warehouses for months, government fines and penalties, and runaway costs.

Sourcing and procurement are two different processes. Sourcing is the identification of suppliers, and getting this process right makes the procurement process – actual purchasing – more efficient and secure.

A successful global sourcing process enables the business to control costs through a systematic process that is repeatable and adaptable. The first step is identifying business needs in detail. Identify the type of goods as raw materials, components or finished good, and the amount needed.

In many ways, global sourcing begins at the end and works toward the purchase from a selected supplier. For example, research the import requirements for the type of items required. There are differences in importing batteries for digital equipment versus importing food products.

High Risk Point of Compliance
Meeting legal requirements in global purchasing is an area that often becomes the highest risk point in the global supply chain.

The CBP is stepping up enforcement of imports, partly to ensure compliance but also to enhance security. Best practices include gaining a full understanding of how the import regulations from various laws are integrated. The Trade Facilitation and Trade Enforcement Act (TFTEA) required the CBP to strengthen its trade enforcement. The traditional focus includes legality of the imports, like trademark violations, but other factors for stronger enforcement include anti-dumping, social compliance, and countervailing duty.

An example of the integration of regulations is when there is a reclassification of imported items per the Harmonized Tariff Schedule (HTS) during an anti-dumping investigation that leads to higher import duty payments. It is important for businesses importing materials and goods to ensure compliance with the HTS and the TFTEA. Precise recordkeeping is crucial, especially since the automated commercial environment reduced many of the hard copy shipping documents the CBP references for compliance. The CBP has the right to demand a business produce the documents, and if unable to do so, the company is fined for each violation.

The Customs Trade Partnership Against Terrorism program combines security and compliance and, in effect, pushes responsibility to senior management. Executives need to approve and support the compliance process established, including requiring data transparency. Once the import requirements are fully understood, an assessment of the supplier market is conducted. Rank the countries in terms of their export requirements, costs and risks. Take into account raw materials; labor costs and human rights; financial stability; exchange rates; tax requirements; freight costs; and the risks – environmental, political problems, social. Then select suppliers to investigate from the preferred countries.

Get Firsthand Knowledge
Selecting suppliers is not something done by a simple review online. Choose the wrong suppliers, and the whole supply chain is at risk – upstream and downstream. Visit production sites; discuss performance with their customers; investigate their financial status; and evaluate factors like capabilities and scalability, risks, and costs.

After suppliers are selected, their placement in the supply chain is determined. They can be suppliers providing goods and materials through direct purchasing, or they may become partners with other suppliers.

Negotiating price, discounts, freight and all the other costs is one of the last steps. In simpler supply chains, purchasing found what they wanted through a bidding process and negotiated a price up front to drive supply selection. In the global supply chain, price is considered after things like quality and risk mitigation are considered.

Making full use of technology to manage the global supply chain will enable more efficient supply chain tracking and management. Some companies outsource their international supply chain management with companies that have experience contracting with suppliers in different countries and offer technology that enables purchasing products from multiple international suppliers and managing supplier performance.

Some of the additional issues associated with global sourcing and purchasing include working with companies in different cultures, longer lead times, currency fluctuations, transportation disruptions, and ensuring quality of materials and goods is maintained.

One of the risks that can lead to excessive costs is getting a shipment and discovering it does not meet quality standards. This is another reason businesses periodically conduct onsite audits of suppliers providing critical items.

Takes a Team and Not a Buyer
There are clearly so many new risks to consider in a global supply chain. Out of sight is not out of mind.

Develop a multi-function team to build the global supply chain. This enables the ability to stay on top of issues within the company at the same time global suppliers are being vetted and selected.

Developing good communication channels with internal decision-makers and suppliers can help with early identification of supplier problems or issues.