Location and Qualification of Global Sources
Anthony A. Noë, C.P.M., A.P.P.
Anthony A. Noë, C.P.M., A.P.P., Director of Purchasing, Macklanburg-Duncan, http://www.mdteam.com, Oklahoma City, OK 73118, 405/557-3528, firstname.lastname@example.org
85th Annual International Conference Proceedings - 2000
Abstract. In the market place today, competition forces all of us to constantly be on the search for that 'Holy Grail' of the lowest cost supplier. In the global environment that many times props us to look across borders, or even oceans in search of that low cost supplier. How do we start a global sourcing effort? How do we find a supplier in a land we may have never seen and know little about? How can we 'qualify', or at least assure ourselves of their capability 'over there'? These are the topics this presentation is intended to assist you in answering.
Where to Start? There are points that should be addressed and answered before you attempt a global sourcing effort. They are:
- Target product identification
First item of business is to establish what components, raw material or finished product is a good target for Global Sourcing. Some of the criteria to consider, is this a key component that will be delivery sensitive (remember it is a lot longer lead-time from a global source due to distance and import customs clearance without special arrangements)? Is this an item with high labor content in manufacturing (this is the low hanging fruit since labor is one area many countries have at a low rate than the USA)? Is this a raw material that originates in a foreign country naturally and abundantly? Are there any shipping or import restrictions on bringing this material into the USA? Is your market going to be sensitive to country of origin for this product? Can you get packaging to match your domestic packaging from the global market?
All of these are pass/fail tests to identify your target product. This is not an all inclusive list but covers some of the basic hurdles that companies have failed to consider and their global sourcing became a burden and hindrance not a source of higher margins and profit.
- Target price established along with detailed quality specifications
First comes the thoughtful evaluation of how much savings is it worth to make it worth while to source globally. Is it 10%, 25% or do you feel it must be 50% better to justify the extra effort involved in global sourcing? After you have that figure in mind, do a simple analysis on the products you are targeting. How much cheaper would their labor have to be to get to your target? How much less would their raw materials have to be to get there? Is that realistic? If so, you have the most important task next.
What does a good product look like, feel like, work like? Unlike your sourcing efforts in the states, many times you can not just say I want a left handed widget and expect your source to know what that is. This is not because they are un-educated or ignorant in any way. The product may be 'cultural' or country specific. It may be an item that is in common use in the USA but is not used, or used rarely, in the foreign country. A good example in our business is a door threshold like you would find under your front door at home, either wood or metal. The style, material and dimensions of that item are fairly specific to a select building style, which tends to be fairly country specific. In fact in the USA is even fairly regionally specific. This means you must document and settle within your company what a good part is, what must it do, or not do, etc. before you ask someone to quote it. For example do you want some testing done before it is shipped, what type testing, does it require special equipment for you to accept? Drawings with clear metric, and if you wish to include fractional, dimensions will be needed in many cases. Internationally recognized standards on material specifications are very helpful when available.
Once you have these developed you are ready for the next step.
- Management support secured
A critical factor before you start out in these efforts is an upper management group supportive of the effort. This usually requires the material you have already put together to show the potential savings you hope to find, why you picked these items and how are you going to do this. This is important for several reasons, three of the most important it helps them to understand this is not going to be quick, it may require a little more time to accomplish, and it should include a trip to see the suppliers facilities which may be costly.
Once this is sold as a good program you start immediately seeking that source.
Location of the Supplier. Locating a qualified and skilled source in the global market can be a difficult task unless you have a plan. There are many good sources for information on these low cost suppliers we are looking for, some of the best being other Purchasing personnel. In the same way that you ask other buyers of a commodity for ideas on which they use for this or that, ask a buyer you know who does some global buying who he uses for your widgets? He/she can share the experience they have had with specific suppliers possibly even in the type of item you are looking for. If not they may refer you to some one they know who can help you. This is the best source because you are getting first hand experience information from someone with nothing to gain by your decision, from here on that is not the case.
One of the best second sources are found in both the hard copies and on-line copies of foreign sourcing guides. For example the publication Asian Sources has several different versions targeted are different market segments. The Hardware publication comes once a month and has an average over 200 pages each issue. It covers sources of various hardware products as well as in depth discussions on a specific market segment each month. You can also find it on-line at http://www.asiansources.com/ and includes search capability as well as details on many products and links to all the various segment publications of their group. This just one of many available both in print form and on-line to find that foreign source. As was pointed out the down side is they make money from advertisements, not from the joy of you finding the best source for your needs, so they are a beginning but not the final say in the process.
Another good source if you have a better idea where your item comes from into the US today is the Embassy of that Country. Most have a 'Business Development' section at the embassy. They are very happy to help you out with this type of work, as they are benefited by increased exports from their country. A good example of the foreign government help in this area can be found on-line at http://www.ktnet.co.kr/enghome/ . This is a site for the Korea Trade Network. This is an excellent source for information on South Korean life, business and sources. As a semi-government site it offers main good insights into Korean business for those looking to source there.
Qualification. The most important step in the success of this effort comes in qualification of the selected supplier. It can not be over emphasized the importance of face to face contacts with the supplier at their site.
Let's first look at this trip. Your goals are many fold but bottom line you must confirm with this first face to face that you are both talking about the same thing. Language, culture and mutual lack of true understanding can cause more problems then it is economical to list. An example would be our cultural expression 'in the ball park'. When we talk to our domestic suppliers and say they are 'in the ball park' they know they are close on price or getting the order. When we say that to a foreign supplier, say from Italy, he says 'OK' but has little understanding what that means exactly. Face to face you can tell the lack of true understanding and explain in non-cultural terms. You can also see how they will make your item, or where it comes from, how they inspect and test or any other piece of information not fully clear to you before the visit.
This is also vital to establish in the supplier's mind that you are serious about this business and working with them. This can be vital in getting that better price and success in your efforts. This is costly in time and travel expense, but the rewards in understanding and stability of your sourcing will many times pay for the expenditure many time over if handle well.
During this visit the specifications you developed should be discussed in depth to assure everyone'' understanding and commitment meet them on an on-going basis. You must understand if you have found that 'low cost' supplier you were looking for, they may also be new to the export business and sales to the United States. Assure yourself that they understand the paperwork involved and processes they must follow to export you product, low cost on their dock does you little good. Also assure yourself they understand the quality expectations of your market if this is a finished good for your product line. Many other countries do not have the retail market as developed as we do and appearance is not a critical factor on the shelf in their domestic market. Make sure you both understand it is critical for you and your efforts. But be fair, do not set higher standards for a global source than for a domestic source, that will only assure failure for both of you.
Summary. Global sourcing can be very rewarding both from a business perspective but also a personnel perspective if done well. It can also be a disaster is done for the wrong reasons or with lack of commitment of research. Hopefully you will find by identifying the right items, targeting reasonable (but aggressive) savings, establishing the proper specifications that complete identify what a good item is, and researching the supplier you will have great success in this portion of your Procurement task.