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Publication Date: 07/1/2009
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Maximizing Sourcing Strategy

Failure to plan for the long term can often prove detrimental. Installing an automation process without forecasting potential technological advancements can leave you with an archaic process a few years later. Neglecting to forecast changing trends in consumer demand can leave you manufacturing a once-popular product that consumers no longer want.

Though a long-view approach to managing operations will likely lead to long-term success, it is also critical to be able to react to inevitable sudden market shifts or short-term crises. Few manufacturers were fully prepared for the economic troubles of late, but those lacking the flexibility to quickly scale back or otherwise alter their operations accordingly were hit hardest.

The balancing act between long-term planning and being able to react to short-term opportunities and threats is a delicate one. Consider your sourcing strategy for manufacturing inputs, such as raw materials and components. Are you locked into long-term supplier relationships with great cost savings, but without the flexibility to rapidly adjust to sudden market changes?

"Global sourcing" has long been popular for many manufacturers. Improved technology and better communication tools have paved the way for worldwide sourcing, allowing manufacturers access to cheaper global sourcing options. Sourcing from Asia has been a popular choice, due to its relatively cheap labor and efficient transportation infrastructure, which can dramatically reduce sourcing costs.

When fuel prices skyrocketed recently, it prompted some manufacturers to abandon a global approach for "near sourcing", or procuring manufacturing components from sources closer to the manufacturing facilities, which can sometimes help reduce costs and delivery times. But when fuel prices began to go back down and a turbulent economy presented new challenges, it left many struggling to determine which strategy made the most sense for their business. The truth is that there is no blanket sourcing solution, because each manufacturer has unique sourcing needs. Manufacturers should tailor their sourcing strategy to meet their specific needs, which may mean a mix of near sourcing and global sourcing capabilities. Consider your needs and the benefits of each sourcing option to begin to determine the right fit for your business. It's reasonable to assume that near sourcing from closer to your own facilities would be a cheaper option than sourcing from overseas. While this is sometimes the case, particularly when fuel prices are high, global sourcing is still usually the cheapest option. Asia's low labor costs and transportation infrastructure, optimized for low-cost sourcing, often makes it cheaper even compared to Mexico, a popular near-sourcing option.

Supplier management is another factor to consider. Many believe near sourcing will give their business greater operational control over their suppliers based on geographic location alone. But, even when working with suppliers a world away, solutions exist today that allow manufacturers to monitor their suppliers and better connect their entire supplier base.

Global sourcing can be more cost-effective. On the other hand, if speed is your objective, near sourcing is likely a better fit. If your business model places a premium on being nimble, having your suppliers nearby can help you keep ahead of market changes. If your company manufactures retail consumer goods that experience sudden between-season demand changes, a "fast-turn" near sourcing solution can be extremely valuable. This type of solution allows

manufacturers to bring in inventory as needed, rather than bringing in large volumes periodically, which is often the case with global sourcing.

To zero in on the right strategy — or the right mix of strategies — consider your needs at the product level. If rapid restocking of materials is unnecessary, then an "efficient" approach that focuses on lowering costs is often most appropriate. If, on the other hand, the materials you are sourcing require rapid restocking, you will likely benefit from an "effective" near sourcing option that offers faster turnaround and visibility into the movement of your goods.

You should also consider the insurance, freight, warehousing and regulations involved with sourcing manufacturing components. Once you understand the benefits and detriments of each sourcing location, you will have a better perspective on building a strategy that meets your business needs.

It may be appropriate to turn to a third-party logistics provider (3PL) for assistance in designing a sourcing strategy that fits your business. A high-quality 3PL will provide the infrastructure and expertise to help you source with the most efficient, effective and flexible strategy, so you can focus on your core competency. Near sourcing provides considerable short-term benefits, and can play a valuable role in your sourcing strategy. But, as barriers to international trade continue to fall and open the door to a world of suppliers, it also is apparent that globalization is a long-term trend. The key to sourcing success is flexibility. There are countless sourcing opportunities, and limiting yourself to a single option can lock you into a costly strategy when opportunities and threats impact your business.

Contact: UPS, 55 Glenlake Parkway NE, Atlanta, GA 30328 800-742-5877 Web:

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