CPSM Blog

Developing international sources for materials and services

The general public just reads about international sourcing or outsourcing for materials and services but the supply manager has to deliver on this topic (Task 1-C-2) for her/his organization. Here are the key topics in this section.

• Benchmarking and Researching Sources: A supply management leader must start with the Internet on researching international sources for goods and services but needs to also be active on several fronts. These include attending trade fairs and conferences of your industry. The Detroit Auto Show in Detroit USA if you are working at any point of the auto supply chain, the Interpack Trade fair in Dusseldorf Germany if you are involved in the food and packaging industry anywhere in the world. You might argue that why do I need to travel countries if I can just search the website or better still wait for the marketing folks of the supplier to contact me. Guess what: if you do not take an active role in researching and benchmarking supply sources yourself, you might land with only average suppliers who have very active sales teams. If you are at a trade conference and ask another supply management colleague for frank feedback about the supplier, you are likely to get a very clear picture.
• Interpersonal skills and cultural awareness is a tricky area and a sincere effort and interest to learn about business practices and culture ahead of meeting your counterparts can be useful. In eastern Asia, Japanese executives might get pretty offended if you inadvertently scratched their business cards with your finger nails! Similarly clocks as gifts in China are not recommended. The trouble is that many suppliers (being suppliers) feel hesitant to speak up about stuff they find objectionable. Throw eastern politeness in the mix and you suddenly find that the supplier is not doing 100% for your organization after you have given them the work. 
• Tariffs, Exchange Rates, Fees and Logistics are other areas you need to think about as you develop expertise on international sourcing. However, much of this stuff is available online. A good way to search for details is to search in the domain of the country you are looking for. Thus instead of searching Google.com alone in you are interested in say India you should also search in the Google India website http://www.google.co.in/.

A good way to prepare for this section is to actually observe the various things your organization does to develop international sources for materials and services. Today it is almost impossible to find organizations who are not involved in International sourcing given the Internet, easy communications and general globalization.

 

Cross-Border Transaction documentation

Cross border transactions require good documentation. These are guided by the UN Convention on Contracts for International Sale of Goods (CISG) and the International Commercial Terms (Incoterms ) used for contracting.

Additional points to consider are relating to the US Foreign Corrupt Practices Act. the International Ant-Bribery Act of 1998,Anti-boycott legislation and the Export Administration act. Security considerations encourage the use of RFID for verifying identity of goods.  Finally, professional brokers specialized in documentation  can assist with documentation and ensuring that all the transactions are thoroughly well documented.

International sources of materials and Services and 4PL

This section provides a mix of guidelines including researching and benchmarking global suppliers, interpersonal skills required, cultural awareness,financial issues including computing different exchange rate concepts like Nominal Official Exchange Rate (NOER), Real official exchange rate (ROER) etc.

The growing trend (1/3) of transactions being done by subsidiaries on behalf of holding company and then avoiding letter of credit and other international costs is an interesting development. Understanding tariff systems like Ad Valorem vs. Value Added Tax (VAT) is important as is the need to articulate a business case for international procurement.

Finally, the discussion on 3rd Party vs 4th Party logistics (4PL) or a lead logistics provider (LLP) does confuse matters!

Identifying and assessing international markets for sourcing

The advantages of a global "flat world" in terms of technology,travel and cultural links today allow the sourcing of goods and services like never before. The supply manager has to accordingly be come aware of cultural differences between suppliers from different countries, understand micro-economic and macroeconomic factors operating in the country and examine infrastructure including transportation,technology and stability of government.

An interesting point in this section is that today global sourcing becomes imperative because your competitors are doing it  and becoming more competitive and if you do not, then your organization may be left behind.