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Sourcing Within the Global Supply Chain Can Make or Break an SMB

By Samuel Greengard

Deciding where to source goods within the global supply chain presents formidable challenges, particularly when rapidly changing market conditions force organizations to adapt, experts agree. For example, at some point it could become necessary to switch to a supplier in a different country because of price changes or new tariffs; or, an organization might need to rethink and revamp processes to more effectively harness automation, deal with a natural disaster, or other disruption.

The goal, of course, is to build maximum agility and flexibility into your supply chain management. Consulting firm PwC found that companies with best-in-class global supply chain management achieve nearly 50 percent higher sales growth than others.1 Researchers at the U.K.’s University of Central Lancashire report that supply chain efficiency correlates strongly with enhanced market share, better customer loyalty and higher performance relative to competitors.2

 

While there is no single method for managing supply chain sourcing, experts suggest it’s important to have a strategic framework encompassing enhanced data, visibility and decision-making capabilities. These tools make it possible to monitor factors as diverse as product quality, labor costs and political stability, as well as more straightforward logistics and trade compliance tasks.3

 

Rethinking Supply Chain Management: How and Where to Source Goods

 

Achieving multidimensional decision-making requires rethinking and rewiring business processes to be highly integrated. A problem for organizations is that sourcing decisions have traditionally been handled separately based on logistics and trade-compliance considerations. This results in a breakdown between supply chain partners, an Amber Road sourcing survey report pointed out.4 What’s more, as the number of suppliers and partners increases, supply chain management complexity grows.

 

For most effective sourcing, supply chain managers typically consider four primary challenges: communication and collaboration, which can undermine product quality, reliability and capacity planning; lead time, which can cause delays and disruptions; increased compliance burdens; and unforeseen costs. “Companies must stop simply sourcing, and start optimal sourcing, which entails fully analyzing the costs and risks associated with each sourcing option, including transportation and insurance costs,” the Amber Road report suggested.

 

However, a global sourcing strategy must also address the high level of political and economic volatility in today’s markets. Changes in suppliers can impact a wide array of factors. These include: product quality, transportations costs, labor costs, infrastructure costs, free trade and other preferential trade agreements, choices for raw materials and components, and political stability. For example, initiatives such as the EU’s General Data Protection Regulation (GDPR) potentially change the global supply chain landscape.

 

Ultimately, a best practice framework for global supply chain sourcing depends on three primary issues: developing policies and processes for managing decisions; putting technology to work to provide insights through analytics, automation and artificial intelligence (AI); and using metrics to monitor performance and detect changes as they take place. According to PwC, best-in-class companies in global supply chain management achieve 20 percent higher profitability than others.5

 

Issues at The Center of Sourcing Success

 

Organizations must address a few key issues to excel in global supply chain sourcing. A study conducted by American Shipper found that 56 percent of respondents were concerned about lack of speed to market; 49 percent were anxious about their vulnerability to disruption; and 37 percent were concerned about the complexity of international trade compliance. Yet the same study found that only 37 percent engage in data sharing with suppliers and only one-quarter have connected sourcing and logistics systems on a single platform.6

 

Information technology is critical, experts say. Live data about internal inventory levels, supplier inventory, commodity and component pricing, and consumption patterns helps improve decision-making. This could include connected Internet of Things (IoT) devices that can monitor events within a global supply chain and feed crucial data to an organization. Analytics tools that can recognize trends and patterns that might escape the human eye are essential. Gartner found that 96 percent of supply chain leaders use predictive analytics and 64 percent depend on AI.7 The consulting firm noted that these tools effectively augment or automate human decision making.8

 

Finally, there’s the need for metrics and key performance indicators (KPIs) to align processes within the supply chain. PwC reported three types of KPIs are key: quantitative metrics, such as pricing and bottom-line financials; qualitative metrics, including gauging the maturity of practices spanning planning, sourcing, making and delivering; and complexity metrics that aid firms in understanding their relative supply chain complexities vis a vis three key drivers of complexity: products and services, network structure, and systems.9

 

The

Takeaway:

Global supply chain management experts say developing a best-practice supply chain sourcing strategy requires that organizations build a data platform around three key areas: processes, technology, and metrics. Such a framework delivers insights about pricing, suppliers, market trends, performance and profitability, allowing a business to make more effective choices about sourcing. What’s more, when a business has accurate data it can better plan and prepare for upheaval and disruptions while ensuring that day-to-day operations are designed for maximum performance and profits.

Samuel Greengard

The Author

Samuel Greengard

Samuel Greengard is a veteran journalist who has contributed to many business and technology publications. He is also the author of two books: The Internet of Things (MIT Press, 2015) and the AARP Crash Course in Finding the Work You Love: The Essential Guide to Reinventing Your Life (Sterling, 2008).

 

Sources

1. “PwC’s Performance Measurement Group Supply Chain Benchmark,” PwC; https://www.pwc.com/th/en/consulting/operations/assets/pdf/benchmarking-supply-chain.pdf
2. “A relational study of supply chain agility, competitiveness and business performance in the oil and gas industry,” University of Central Lancashire; http://clok.uclan.ac.uk/6364/1/1-s2.0-S0925527312004288-main.pdf
3. “2018 EU Sourcing Survey Report,” Amber Road; https://info.amberroad.com/rl_WhitePaper_2018EUSourcingSurveyReport.html
4. Ibid.
5. “PwC’s Performance Measurement Group Supply Chain Benchmark,” PwC; https://www.pwc.com/th/en/consulting/operations/assets/pdf/benchmarking-supply-chain.pdf
6. Bridging the Sourcing-Global Trade Divide, American Shipper; https://info.amberroad.com/rs/665-BWT-776/images/American%20Shipper%20Sourcing-Global%20Trade%20Divide%20Infographic.pdf
7. “Improve the Supply Chain with Advanced Analytics and AI,” Gartner; https://www.gartner.com/smarterwithgartner/improve-the-supply-chain-with-advanced-analytics-and-ai/
8. Ibid.
9. “PwC’s Performance Measurement Group Supply Chain Benchmark,” PwC; https://www.pwc.com/th/en/consulting/operations/assets/pdf/benchmarking-supply-chain.pdf

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