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Global Sourcing Spotlight: What To Do When Things Go Wrong

Global sourcing can offer many advantages, such as cost savings and access to a wider range of products. It seems that the advantages are limitless. However, several potential challenges and risks are associated with buying from other countries, especially in Asia. So, you must not only be aware of them, but have a plan if something does go wrong.

Here are 12 things that can go wrong and how to mitigate them:

1. Quality issues: Products may not meet your quality standards, leading to defects or subpar performance. What you can do: Conduct thorough supplier audits, inspections, and quality control processes. Specify quality requirements in your contracts. You should stay close to your suppliers at all times and monitor their well-being to be sure their processes are constantly being controlled. While it’s their process, they are building your product, so your reputation is on the line.
2. Communication barriers: Language and cultural differences can lead to misunderstandings and miscommunication. What you can do: Use experienced interpreters or translators when necessary. Build strong relationships with your suppliers and foster open communication. If you are doing a considerable amount of business, hire your advocate right there who will look out for your interests.
3. Supply chain disruptions: Political instability, natural disasters, or transportation issues can disrupt the supply chain. What you can do: Diversify suppliers, maintain safety stock, and have contingency plans to mitigate disruptions. In other words, hedge your bets. It’s good to have options, especially when tensions with China and other parts of the world are elevated.
4. Intellectual property theft: Your designs or proprietary information may be stolen or replicated by the supplier. This has become so common that you can count on it. What you can do: Protect your intellectual property with contracts, patents, and confidentiality agreements. Monitor for any signs of IP infringement. Be careful who you work with and have your advocate in the country to ensure this does not happen.
5. Regulatory compliance: Products may not meet regulatory standards in your home country, leading to legal issues. What you can do: Ensure your suppliers comply with relevant regulations and certifications. Stay informed about changing regulations. This is another great reason to visit and audit regularly. They might have had the right specifications and regulations when you started but it is your responsibility to be sure they have maintained them.
6. Payment risks: Payment issues, such as currency fluctuations or non-payment, can strain your finances. If you’re the ones buying, payments can get lost along the way. What you can do: Establish clear payment terms and currency agreements. Use payment methods that offer protection, like letters of credit or escrow services.
7. Ethical and social responsibility concerns: Suppliers may engage in unethical practices, such as child labor or environmental violations. What you can do: Choose suppliers with strong ethical and social responsibility track records. Conduct audits and inspections to ensure compliance. What is important to you and your customers, may not be that important to your offshore vendors. Sometimes the differences are not even unethical but a matter of national ethos.
8. Long lead times: Delays in production or shipping can affect your ability to meet customer demand. What you can do: Plan for longer lead times and work closely with suppliers to optimize production schedules.
9. Currency exchange rate fluctuations: Changes in exchange rates can impact the cost of goods and profitability. What you can do: Hedge against currency risks when possible. Use forward contracts or other financial instruments.
10. Unreliable suppliers: Suppliers may not fulfill orders or may go out of business unexpectedly. Establish strong relationships with reputable suppliers, diversify your supplier base, and have backup suppliers in place.
11. Conflicts and wars: As we have seen in the Ukraine and Israel, stuff happens. Geopolitics happens and there is nothing you can do to control that. What you can do: Diversify your vendor base. Look for suppliers in other parts of the world and develop those relationships.
12. Supply chain interruptions for whatever reasons: We’re used to it, but you still need a plan. What you can do: Always have a backup or two or three. You can never have too many varied links to your supply chain. Keep them alive and well-oiled because with a world in flux, you’ll need it.

In global sourcing, due diligence, risk management, and clear communication are crucial for success. It's essential to be proactive in addressing potential issues and building strong relationships with your overseas partners to mitigate these challenges. Remember that the stronger and more varied your supply chain relationships are, the stronger your chain and the more secure your global sourcing will be.

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