Ch. 10: Worldwide Sourcing

Impact of Globalization

• Tech accelerates

• Cost savings

• New markets

• Issue of trade balances and currency fluctuations

Outsourcing

• Contracting with indepdeant suppliers outside the org

• Domestic or foreign

• Provider products inside the org

Offshoring

Contracting with independent suppliers located outside georgraphic boundaries of home country

Re-Shoring

Bringing offshore sources back into home country

Nearshoring

Relocating sources to countries geographically closer to home country

International Purchasing

Commerical purchase transactions between buyers and suppliers in different countries

Global Sourcing

Integrating and coordinating common items, processes, designs, techs, etc across worldwide purchasing, engineering and operations

Benefits of Sourcing Worldwide

• Meeting competitor buying patterns

• Availability

• Competition to domestic sources

• Presence in foreign markets

• Quality

• Access to tech

• Cost/price

Cost/Price Benefits

• Lower labour rates

• Might have to accept a lower profit margin

• Exchange rate rate differences

• Lower cost materials and input

Barriers to Worldwide Sourcing

• Lack of skills

• Resistance to change

• Longer lead times

• Currency flucations

• Increased supply risk

• Language/ cultural

Document Requirements

• Letters of credit

• BOLs

• Packing lists

• Inspection certificates

• Certs. Insurance coverage

• Certs. Of origin

Types of Intermediaries and Support

• Trading companies

• Third-party support

IPOs

International Purchasing Offices

What do IPOs do?

• Identify potential suppliers

• Negotiate supply contracts

• Manage technical and commercial concerns

• Supplier site visits

INCOTERMS

• Are internationally recognized commerical terms

• Describe responsibilities of the buyer and seller in the arrangement of transportations

• : EXW DDP

Legal Issues

• Diff depending on country

• UN: Contracts for the International sale of goods

• WTO: World Trade Organization

Types of Countertrade

• Barter

• Counter-purchase

• Offset

• Switch trading

• Buy-back

Counterpurchase

• Reqires selling firm to purchase specified amount of goods from country that purchased it products

• % of original sale

• Product unrelated to company’s primary business

Offset

• Similar to counterpurchase

• Selling firm can purchase items related directly to its business requirements

Buy-Back

• AKA compensation trading

• Firm agrees to take a portion of the plant’s output as payment

• Building a plant in 3rd world country or providing products to support a plant

Switch Trading

• Accept goods from buying country as partial payment

• If not, selling firm could sell ate discount rate

  • Sold to third party

Foreign Trade Zones

• FTZ

• Importing company to delay, eliminate or decrease its duty-payment in foreign-produced goods that enter the zone site 

• General-purpose zone vs. subzone