Global sourcing

Get to grips with global sourcing and why it’s so important today

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What is global sourcing?

Global sourcing is the act of sourcing products or services across international boundaries. Many organisations opt to source their products oversees as, usually, labour costs and raw materials are much lower. There are also other economic benefits such as tax breaks and low trade tariffs. Although local sourcing enables faster logistics, shorter time to market and more control over manufacturing, global sourcing is still considered as the cheaper option. An example of global sourcing is call centres in India and the Philippines and textiles that are manufactured in China.

Why is global sourcing important?

There is a huge international demand for high volume and high-quality products, bringing with it competition. Organisations need to keep with the technology changes and advances, whilst striving to keep costs low and increase value in all aspects of the supply chain. Global sourcing offers a cost-effective solution, where raw materials are readily available and often at a lower price than you see locally. Here are some additional reasons why global sourcing is important.

Global trade leads to peace. Nations that trade together are unlikely to go to war, which is a huge reason why global sourcing is so important.
Global sourcing helps to sustain many of the world’s economies.
Innovation will lead to technology, which lessens the environmental impact of global trade. For example, experiments with fuel cell and cleaner alternative power sources.

What are the benefits of global sourcing?

Organisations are competing for the opportunity to sell to your business, so costs are often lower, both raw materials and labour costs. Take a look at some of the benefits of global sourcing.

Reduced cost price: Costs are lower for raw materials; labour costs and global sourcing often leads to tax breaks and low trade tariffs.
Supplier development: Global sourcing allows you to support specialist product offerings which can lead to innovation and upskilling a new workforce.
Increasing competition: Developing new suppliers will open your access to suitable skilled supply routes.
Increase your business skills: Global sourcing allows you to learn how to do business internationally.
New supplier: You may find new business and new customers when you implement global sourcing.

What are the challenges of global sourcing?

Sustainability: As the sustainability agenda moves further into the spotlight, so does global sourcing’s impact, including the carbon footprint, especially through global sourcing’s increased need for transport. Globalisation has exported our domestic carbon footprint elsewhere as goods are manufactured abroad rather than reduced our carbon footprint.
Loss of agility: Today there is a need to be demand-driven rather than forecast-driven, which is difficult to achieve with extended lead times. Extended pipelines impact both time-to-market for new products, and the ability to amend supply if the demand changes.
Hidden costs: There are lots of hidden costs such as the time and effort spent learning about cultures and time zones, particularly in the beginning of the process.
Exposure risks: Global sourcing brings political and environmental risks, so understanding where your products are being made in the first instance is important.

Sourcing strategy

Learn how to develop your sourcing strategy and the importance of finding value within the supply chain.

Find out more about Sourcing Strategy

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