As we move into a more modern and technologically advanced world, the global borders have, in a way, changed in dimensions. With increased trade between countries, the strategic sourcing process has become an integral part of international business.
But along with opportunities, it has also brought some challenges with it. Let us look at some of these challenges and how they impact business as a whole.
Governance is always an issue when you are sourcing globally. The onus of governance falls in the hands of the locals because they will be present on the ground. Lack of third-party governance might encourage suppliers to cut corners and provide sub-standard quality to increase their profits. Frequent quality defects and lack of confidence in international suppliers lead to additional quality inspection within the supply chain and adds cost and lead time.
Communication is the key to the success of any relationship including trade and business. Non-verbal clues, which play an important part in effective communication, are absent when communicating over the phone or via emails and amplifies challenges due to language barrier and cultural differences. The meaning of certain words and phrases could vary across different cultures and thus a misplaced word can mean something entirely different from what one actually meant to say. Varying time zones and national holidays can add to the complexity and cause delays in critical communication.
Government relations and regulatory requirements
The challenge here is for companies to adapt to different regulatory and compliance requirements of each country that it does business with. In effect, a company is expected to understand and adhere to the local laws and government regulations. Lack of such knowledge can lead to regulatory fines and inability to extract maximum value from international supply chains.
Logistics and warehousing
With businesses going global, products and services are moved from one location to another, which can be as far as thousands of miles, increasing the risks associated with logistics and warehousing. Unforeseen events such as natural disasters, political unrest, theft, loading/unloading accidents, transit supply shortages, etc. can lead to delays and increase in overall logistics costs.
In-house resistance can negatively impact the chances of successfully developing suppliers internationally. Lack of trust, fear of losing jobs, risk of sharing proprietary information and quality concerns may prevent internal stakeholders from sharing vital information with suppliers. Full support of internal stakeholders from different function groups such as procurement, quality, shipping and receiving, process control, engineering, etc. is critical prior to engaging with suppliers.
Foreign exchange fluctuations
As global sourcing deals with the exchange of trade and services between different nationalities, there is always a degree of foreign exchange fluctuations. There can be several reasons for this, including political unrest, stock market movements and others.
Connecting with the right suppliers
The internet and aggregation platforms have indeed provided visibility to many suppliers across the world. But this solves just the first piece of the puzzle. Additional vetting and conducting quality audits require time, money and resources. Choosing the right supplier is like finding a needle in a haystack. It can be risky and costly if you choose the wrong supplier to develop.
Undoubtedly, global sourcing offers a lot of challenges that need to be tackled timely and responsibly. This is where we can help. Contact us today to streamline your sourcing operations.