Supply Management Research Reveals the Magnitude of Global Sourcing

Organizations are further integrating and coordinating their global sourcing strategies to achieve superior performance.

Organizations are further integrating and coordinating their global sourcing strategies to achieve superior performance, according to a recent CAPS Research study.

It projects that by 2010, the dollar amount that companies spend on goods obtained from non-U.S. sources will represent 41 percent to 50 percent of their total spend for all goods and materials.

In contrast, the total non-U.S. spending for goods and materials in 2005 was between 31 percent and 40 percent of total spending.

The roadblocks to effective global sourcing include longer lead times, supplier delivery and quality, supplier evaluation and the lack of qualified supply management personnel to support a company’s worldwide sourcing process.

These and other potential issues were considered to be of moderate risk, however, when looking at the cost benefits of global sourcing.

On average, companies with effective global sourcing strategies have reported cost reductions of 19 percent and a 12 percent reduction in total cost of ownership costs.

The authors, Robert M. Monczka, Ph.D., Robert J. Trent, Ph.D., and Kenneth J. Petersen, Ph.D., recommend companies that are going to invest in global sourcing should focus on eight highly interrelated critical performance factors.

1. A defined global sourcing process

2. Centrally coordinated/centrally led decision making

3. Site-based control of operational activities

4. Information sharing with suppliers

5. Real-time communication tools

6. Availability of critical resources

7. Global sourcing and contracting systems

8. International purchasing office support

Improvement in only one or two (of eight factors related to global sourcing performance outcomes) areas may limit continuous performance improvement.

Any investment should provide a significant payback, not only in cost reductions but also in achieving best supplier performance and preferential treatment from suppliers worldwide.

The report goes on to discuss the global sourcing strategies and practices that companies have implemented, and it focuses on those strategies and practices that relate to performance as a basis for selecting improvement priorities.