Global Sourcing in the rough seas – successful risk management for advanced clients

The times in which global sourcing was an exotic specialty for companies and was often reserved for large corporations are long gone. No medium-sized, industrially producing company has been able to assert itself successfully in the past 25 years if it had not optimized its procurement processes and supply chain as part of a global sourcing strategy. Whether this is done directly by an independent sourcing organization or indirectly via service providers varies depending on the industry and size of the company. It is a fact that global sourcing has become a constant factor in the strategic planning of almost all companies in order to ensure optimal, competitive development and use of raw materials, products and production capacities worldwide.

A fixed pillar of functioning global sourcing, which has now become taken for granted, is the largely unrestricted freedom of global goods traffic. The long-term plannable development of supply chains regarding transport logistics and costs.

This pillar of the secured free movement of goods is becoming increasingly unstable.

Bilateral trade conflicts between nations (e.g. China, USA, EU etc.) threaten to mutate into open trade wars – the consequences of which are increasingly difficult to calculate in a supply chain geared towards globalization.

The current paralysis of the WTO is another blow against a globalized, liberal world economy. If new judges are not appointed, this Geneva-based international organization will lose most of its ability to act. Mediation in trade disputes between member states is currently not possible. But this has been the basis for the success of this institution since 1995.

The danger of unforeseeable trade restrictions, sanctions and customs barriers is taking shape – a considerable risk for a supply chain geared towards long-term planning of supply capability and cost management.

Companies that have set up a transparent supply chain structure in view of these risk scenarios and control it with a few, decisive KPIs are therefore currently at an advantage. An entrepreneurially oriented, efficient risk management, which unfortunately is rather a formalistic shadow existence for many companies in the area of procurement and supply chain, is the best control element to cope with the new challenges. Even the most efficient risk management does not prevent serious shifts in sourcing benefits that are believed to be certain. But it does not affect companies with active risk management in procurement and supply chain unprepared and usually gives those responsible time to define and implement innovative countermeasures. This always results in a competitive advantage.

In many discussions and projects, we repeatedly encourage our business partners not to primarily question global sourcing, but to secure it with strategically oriented risk management. It´s time to act.

Author: Gregor van Ackeren