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“ ONE OF THE BIGGEST PROBLEMS IN DEALING WITH OVERSEAS SOURCING IS COMMUNICATION . MOST PROBLEMS CAN BE AVOIDED FROM THE BEGINNING WITH PROPER COMMUNICATION .”
– GRACE ZHANG , STRATEGIC GLOBAL SOURCING LTD .
GLOBAL SOURCING RISKS AND HOW TO MITIGATE THEM
Consider the several major risks connected with global sourcing and you might be put off ever doing it again . Those risks pertain to :
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Currency fluctuation : Purchases can become more expensive than anticipated if the value of the dollar drops .
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Transportation : Shipped around the world using various modes of transportation , goods are subject to loss , damage and delay at a higher rate than if purchased in Canada , closer to their destination .
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Low health standards : Lower health and safety standards in some countries mean that products arrive for sale in Canada in a condition that prevents their sale ; the use of lead-based paint on toys , for example , is prohibited in Canada but not in all countries .
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Liability and reputation : The sale of imported goods that are found to be unsafe or manufactured under conditions that violate human rights can be disastrous for a company ’ s reputation and profit .
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Language and cultural differences : Different social customs and ethical standards are observed in business relationships around the world . Misunderstandings in this area can put an enormous strain on a business relationship and lead to both financial loss and court battles .
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International politics and legal differences : Loss or delay of product can be caused by a purchaser ’ s lack of awareness of trade barriers , disputes or laws or government instability in the country of origin .
Being aware of the risks in sourcing goods outside of Canada is an important first step in protecting your company against them . But awareness is not expertise ; much more is needed .
Research and alternative plans are essential , says Crupi . Knowing your suppliers and understanding the countries from which you ’ re importing will help to mitigate the risks associated with global sourcing , as will having backup suppliers for critical products and services . He recommends , too , that you assess the potential costs related to each risk , and manage those with the highest possible costs most diligently . If the cost associated with a risk is determined to be low , that risk requires little monitoring , especially when time is limited .
In Zhang ’ s view , hiring a global sourcing professional , as either an employee or a consultant , is the best way to mitigate the risks inherent in buying from outside of Canada , in particular from overseas . The right person for this role will have a strong background in and knowledge of your industry , as well as the language skills and cultural knowledge to deal effectively with manufacturers and other supply chain parties in the country of origin .
“ One of the biggest problems in dealing with overseas sourcing is communication ,” said Zhang . “ Most problems can be avoided from the beginning with proper communication .”
Zhang offers as an example the possibility of misunderstanding when communicating with a Chinese supplier , who might say “ yes ” during conversation , meaning only that he heard what was being conveyed . It could be a costly mistake to instead assume that the supplier in such a case had agreed to whatever was being discussed .
Another option to mitigate risk is emerging , says Crupi . Competitors in an industry , mostly large companies that are all sourcing the same parts and services , are coming together to share the risks in purchasing those products overseas . This collaboration helps all of the companies meet their requirements with reduced risk .
THE HIDDEN COSTS OF GLOBAL SOURCING
While costs for duties and tariffs are always part of the expense of importing goods – and so are not really hidden – they can be underestimated . For those who “ do their homework ,” says Crupi , these costs can be a known factor .
There are , though , costs to global sourcing that supply chain managers do often overlook , say both Zhang and Crupi . Among them are the costs for the additional time it takes to coordinate with suppliers that are overseas . Different time zones and languages need to be navigated , multimodal transportation planned and border crossings organized . “ The process is more complicated ,” said Crupi . Late deliveries caused by shipping delays can have a detrimental impact on a company ’ s relationships with its customers . Further , delays caused by quality issues will likely be longer when imported goods are involved .
“ Your production line can be stalled waiting for a replacement shipment to arrive ,” said Zhang . Monitoring the production process and regularly checking on the status of ordered goods is critical , she says . Audits of the overseas manufacturing facilities from which you source will help to cover this risk , she adds .
To limit unexpected costs , Zhang strongly recommends that buyers try to negotiate the use of Incoterms DDP ( Delivered
12 • SUPPLYCHAINCANADA . CA • SCMA