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Global Sourcing Spotlight: Meeting the Challenges of Global Sourcing

Sourcing goods and services from around the world can offer many benefits, such as cost savings and access to a wider and better range of products and services, but it also presents many challenges, especially for amateurs.

Global sourcing is a game for experienced experts. The path to global sourcing is riddled with stories of failures and catastrophes, from losing a wire payment for your supplier overseas to theft of proprietary intellectual property. In short, you have to know what you’re doing before you take the leap to global sourcing.

Some of the challenges you must watch out for:

Supply chain disruptions
Global supply chains are vulnerable to various disruptions from natural disasters, political instability, trade disputes, and even a global health crisis. To mitigate these risks:

• Diversify suppliers across different regions and countries
• Maintain safety stock levels to buffer against unexpected disruptions
• Develop contingency plans and regularly update risk assessments

Quality Control
Ensuring consistent product or service quality when dealing with offshore suppliers in different countries can be more than challenging, even sometimes outright devastating. To address these challenges, you must be ready to:

• Establish clear and concise quality standards
• Conduct regular quality audits and inspections at supplier facilities, and sometimes these should be unannounced
• Provide training and support to help suppliers consistently meet quality requirements

Communications and Language Barriers
Working with suppliers from different cultural backgrounds and languages can often lead to miscommunication and misunderstanding. Strategies to overcome this include:

• Using local intermediaries as agents who understand the local language and culture
• Investing in translation and interpretation services
• Developing strong relationships with key suppliers to build trust and effective communication

Logistics and Transportation Costs
Managing the movement of goods across international boundaries can be costly and complex. We all know what happened during the pandemic when shipping costs went through the proverbial roof and products were often delayed indefinitely due to several unforeseen circumstances. To address this challenge:

• Optimize transportation routes and modes to reduce costs
• Utilize technology and software for supply chain visibility and tracking
• Leverage economies of scale through consolidated shipments and warehousing

Tariffs and Trade Regulations
Tariffs, trade regulations, and regulatory compliance requirements can significantly impact the costs and feasibility of global sourcing. Look, for example, what the tariffs did to us in the past few years, artificially padding the costs of products from China and eliminating profit margins from contract manufacturers in this country. Here is what you can do:

• Stay informed about changes in trade regulations and tariffs
• Diversify suppliers to minimize dependence on single source, single country, single region heavy-duty areas
• Engage in dialogue with government agencies and industry associations to advocate favorable trade policies

Cultural Differences
Cultural nuances can affect negotiations, business relationships, and decision-making processes. To address this challenge:

• Invest in cultural training for employees directly involved in global sourcing
• Build cross-cultural competence within the organization
• Foster strong relationships with local partners who can bridge these cultural gaps

Intellectual Property Protection
This is one of the most important challenges we face in global sourcing. Other countries may not have the same patent protection as the United States, so be very wary when dealing with offshore sourcing. This can be especially daunting when dealing with new and innovative product development. To mitigate this risk:

• Clearly define and protect your intellectual property through legal means
• Work with suppliers who have strong intellectual property protection measures in place
• Establish contractual agreements that include IP clauses and dispute resolution mechanisms
• Deal only with straightforward and trustworthy people and companies

Ethics and Sustainability
Global sourcing can raise ethical and sustainability concerns related to labor practices (just ask Nike), environmental impact, and social responsibility. To succeed in the long run, you must be a good global citizen working with other good global citizens. It is the only way to go. To address these issues and adhere to the right disciplines and guidelines:

• Conduct thorough supplier assessments to ensure compliance with ethical and sustainability standards
• Collaborate with suppliers to improve sustainability practices
• Strongly communicate your commitment to ethical and sustainable sourcing to your customers, stakeholders, and supplier partners. Leave no doubt in your supplier’s minds that you have a zero-tolerance policy when it comes to being a solid citizen of the world.

Global sourcing offers numerous benefits but does require careful planning, risk mitigation, and ongoing management to address the challenges associated with it. You must develop robust strategies and guidelines as the basis for your relationships with your global partners to be sure you diligently handle and meet the challenges that come with global sourcing.

Bob Duke is president of the Global Sourcing Division at American Standard Circuits.