chapter 41 chapter 9 worldwide sourcing. 2 a clarification on terms international sourcing...
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2
A Clarification on Terms
• International Sourcing
(Opportunistic)
• Global Sourcing
Integration of Systems
Integration of locations Integration of functions
Worldwide Sourcing
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Why Worldwide Sourcing?
Cost Differentials Quality Access to only source available Better Technology or Processes
The judgment that the best supplier is a foreign firm
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Key Markets for Sourcing Abroad
Taiwan South Korea Philippines Malaysia China*
Romania Hungary
Mexico* Brazil*
India*
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Barriers to Worldwide Sourcing Lack of knowledge about potential foreign sources Lack of understanding on procedures and documents Risks
Long lead times Uncertain outcomes Lack of control Communications Inventory Foreign Exchange Higher cost of doing business Political
Language, cultural, legal, and business practice barriers
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Comments on certain barriers Cultural (values and behavior) Legal
UN’s Convention on the International Sale of Goods (CISG)
WTO members Business practice barriers
Dun and Bradstreet Country Analysis Reports Language
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Language and communication issues Adjust your speaking style
Slow down Use extra presentation graphics Write down numbers Watch your language (profanity, jargon, acronyms) Vocabulary
Watch your body language Know when you reach an agreement
Document decisions in writing
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Language and communication issues
The two largest differences in communication styles across countries are message speed and level of content
Americans generally give fast messages with the conclusions expressed first. This style is inappropriate in many countries, particularly Europe
High-content communication assumes the receiver already understands a great deal of background information
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A firm can approach worldwide sourcing in one of two ways . . .
Use trade intermediaries (specialists)Easiest, simplest, less risky, and potentially the
most cost effective Deal directly with foreign suppliers
Need a well-staffed worldwide sourcing organization
Avoid mark-up of intermediary, but …
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Trade Intermediaries
Import Merchants Manufacturer’s representatives Import Brokers Trading Companies
They add administrative costs but lower the burden and the risks of unforeseen problems
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Trade Intermediaries
Can eliminate some barriers to worldwide sourcing
Where to source How to source
Can manage or reduce other barriers Risks Language, legal, cultural, business practice barriers
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Dealing directly with foreign sources
Eliminates mark-ups and fees Risky if firm doesn’t have a well-trained worldwide
sourcing staff IPO in country
Requires an investment in time and travel Trial orders are common to establish a performance
record Should only be pursued after careful consideration of
the intermediary option
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Obtaining information about suppliers in other countries
Dun and Bradstreet “Supplier Management Services”
World Marketing Directory Marconi’s International Register United States Department of Commerce Major-city banks Foreign Trade Consulates U.S. Embassies overseas Internet: Foreign trade agents
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The issue of Foreign Exchange Risk
Denominate the contract in dollars? Share the risk? Firm’s Finance Department should get
involved Track currency movements; trends and forecasts Engage in hedging
S’pose I denominate a contract with a firm in Mexico in Pesos:
Negotiated price = 10,000,000 Pesos
1. $1 = 10 Pesos $1,000,000
2. $1 = 9 Pesos $1,111,111 (A weakened dollars creates an 11.1% increase in cost for the buyer firm)
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The issue of Countertrade
Countertrade is a marketing department issue
Purchasing is only one option to the dilemma
This issue arises when a foreign government requires you to buy (or trade) their exports for what you sell to them (not necessarily at 100%).
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Global Sourcing: Moving toward a process
International purchasing
Global Sourcing
• Price focused, or
• No suitable domestic supplier exists
• Reactive and uncoordinated among buying units and functional areas
• A strategy for integrating full service foreign suppliers during new product development
• Integration of a firm’s locations, internal functional areas, and information and engineering systems with foreign suppliers
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Concept of a Full Service Suppliers (FSS)
A Full Service Supplier will . . .
• Participate in the design and development of customer products
• Provide technical assistance to the customer
• Optimize delivery and logistics activities
• Offer flexibility and commitment to meet customer needs
• Stand behind his material or service in every way
The shift in responsibility to the supply base for partial responsibility for engineering, research, and development has been coined as Full Service Suppliers or FSS
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Managing a global supply chain
10 11 12 1 2 3 4 5 6 7 8 9 10 11 Noon 1 2 3 4 5 6 7 8 9 10 Cincinnati (Program Headquarters)
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Los Angeles Supplier
Brazil Supplier
8 5
Mexico Supplier
8 5
8 5
Taiwan Supplier8 5 Romania Supplier
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England Supplier8
Australia Supplier8 5
PM AM
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Benefits of Global Sourcing Global suppliers, global processes, and
global strategies are an integral part of a firm’s supply management efforts
Generates coordinated, worldwide design, development, procurement, production, and logistics activities