LO3

Global sourcing arrangements

Arrangement that provide a firm with foreign products.

- There are five global sourcing arrangements:

1. Wholly owned subsidiary: A firm may establish a wholly owned subsidiary
in a low- cost- labor country to supply components to the home country
plant or to supply a product that either is not made in the home country.
2. Overseas joint venture: may be established in a country where labor costs
are lower or quality higher to supply components to the home country.
3. In- bond plant contractor: The firm may send components to be machined
and assembled by an independent contractor in an in-bond plant.
4. Overseas independent contractor: The firm may contract with an
independent contractor overseas to manufacture products to its
specifications.
5. Independent overseas manufacturer: The firm may buy from an
independent overseas manufacturer.

[The fact of the matter is that the world is enveloped in a universal economy.
Hundreds of years ago, Europeans traded with distant Asiatic societies to obtain
goods that weren't available domestically. In the contemporary market,
transnational businesses communicate with one other to trade services for products,
or vice versa.]

[Some popular examples of globally sourced goods and services are: labor-
intensive goods produced in China at low production cost, BPOs staffed with low
cost English proficient people in India, and IT (software and hardware) tasks
performed by Indian and Eastern European low cost programmers. These examples
particularly relate to low cost country specific sourcing but the scope and
definition of global sourcing is not limited to low cost nations.

In reality, global sourcing is a centralized procurement strategy of a multinational

company, wherein a central procurement department seeks the economies of scale
through corporate wide standardization and benchmarking. In short, global
sourcing is a strategic business philosophy that coordinates the worlds most cost
effective production and operation inputs such as men, materials, machines,
technology, suppliers, engineering and other required facilities.]

Importance of global sourcing.

- Encouraging foreign relations: Many firms utilize global sourcing to aim at

promoting foreign trade relations.

Example: In the US, intrafirm trade accounts for 30-40% of exports and 35-45%
imports of goods.

- To create competitive pressures and reduced concept- to- market cycle times
in many product and service sectors => locate suppliers worldwide that can
provide inputs at competitive prices and quality and with quick
responsiveness to market changes.

LO4 The increasing use of electronic purchasing for global sourcing.

In recent years, many firms have set up electronic procurement exchanges,

individually or in conjunction with other firms:

- To identify potential suppliers or customers

- To facilitate efficient and dynamic interactions among these prospective
buyers and suppliers
- Purchasing is increasingly being viewed as a strategic function

Options for global electronic procurement

- Catalog purchases
- Permits buyers and suppliers to interact through a standard bid/quote system
- Facilitates obtaining letters of credit, contracting for logistics and
distribution, and monitoring daily prices and order flows.

Benefits of global electronic procurement systems.

[The establishment of electronic purchasing systems on a company or industry

basis can influence the number and type of suppliers available internationally to
firms. Although there are a number of challenges to their use, electronic purchasing
systems can produce significant reductions in the costs of inputs, both direct and
indirect products and services. These systems can also permit the optimization of
supply chains across networks of organizations, not merely within a single
company.]

- Cut costs
- Improve productivity
- Cut invoice and ordering errors
- Reduce trading cycle time
- Reduce supply base
- Improve internal purchasing processes
- Easily compare bids
- Reduce paper