Global Sourcing – Standard Tool or Out of Fashion?
More than 20 years ago, a big jolt went through the procurement departments. All sourcing managers had to put up with the reproach that they should not always buy around the famous church tower. „Have you ever looked for suppliers for your material worldwide?“ was a standard question in every cost optimization project. Global sourcing was an absolute trend and samples were sent wildly around the world. Cultural differences, extended delivery times, transport and customs costs and different quality requirements were largely ignored and the main thing was to have at least one English-speaking supplier or one that could be invoiced in dollars.
However, the global sourcing trend subsequently became a tool in the procurement toolbox. In some industries and commodity groups it became indispensable, because the cost pressure and contribution to the margin made it necessary to identify suppliers in low cost countries and thus to source globally. No matter whether it was in industries such as fashion or electronics, which have almost traditionally purchased from the Asian region.
Pandemic, lockdowns and complex supply chains have clearly shown us the weaknesses, difficulties and risk of global sourcing. Global sourcing normally has longer lead times, which make it impossible to react positively or negatively to short-term events an only with certain losses for either the supplier or the buyer. And in extreme situations, cultural differences become very apparent, which are managed very well by both sides in day-to-day business. Apart from the fact that there were very different infection incidences, regulations and specifications within the countries. Even with a European Sourcing, you could not get needed goods from Italy in the worst case in spring 2020.
Another aspect is the political protectionism of some countries – even before the pandemic. This has now increased due to all the rescue packages and where it will be possible, domestic measures and goods will be preferred for the coming years. But this is only a guess, because politicians are trying to secure their next election and therefore their own economy should be the first to pick up speed again and the measures taken should have a lot of effect.
The current trend of sustainability is another challenge for global sourcing. Showcase companies have been acting for years in global sourcing on more far-reaching aspects than the classic CSR claim. And yet CO² consumption of the transport chain on the way to the customer and difficult to control daily compliance with sustainability requirements are a clear disadvantage. A producer in Vietnam once put it so appropriately: „If you request European standards in production and sustainability you pay the price of European production.”
Around the world, a “Made in Europe” or “Made in USA” label continues to be a promise of quality for customers. Customers automatically associate a country of manufacture with a level of quality. With perceived lower quality and a lower price, the inclination to dispose of and oppose the circular economy is more pronounced. The upcoming generation of Fridays for future will have to take a new look at the throwaway society, since resources are known to be limited and sustainable action is becoming increasingly important for companies.
Was this then the death knell for global sourcing? Even if the current trend seems to point more towards shorter supply chains around the church tower again, cost pressure will always remain a decision criterion in purchasing decisions. Global sourcing will have to change and grow in flexibility and sustainability. The global complex supply chains will remain but the shape will change.
Could we arouse your interest? We as ADCONIA GmbH have the necessary competences and the wealth of experience to accompany customers in the definition and implementation for global sourcing. Please do not hesitate to contact us if you have any questions.
Rainer den Ouden
Partner, ADCONIA GmbH