SOURCING & PROCUREMENT
Keeping Tabs on Global
Sourcing Is Full-Time Effort
The decision to initiate or
continue global sourcing is
not a simple one to make.
Organizations have many factors to consider, both external and internal, and those
factors can change.
Organizations must revisit
their sourcing strategy often
to ensure that they are maintaining the best value.
—Becky Partida, knowledge specialist,
hrough APQC’s Open Standards Benchmarking survey in procurement, organizations submitted data on the extent to which
they source from other countries. For analysis, these organizations
were split into two groups: one with less than 1 percent of purchases sourced globally, and the other with more than 40 percent of purchases
sourced globally. The survey results indicate that organizations conducting more
global sourcing incur higher costs for multiple activities, which should be evaluated in light of any potential cost savings from this procurement strategy.
Organizations conducting heavy global sourcing report higher costs associated
with developing sourcing strategies. At the median, these organizations spend
$0.46 per $1,000 in revenue for this activity, whereas organizations with minimal
global sourcing spend $0.27 per $1,000. This means that for organizations with
$5bn in revenue, those conducting more global sourcing spend $950,000 more on
developing sourcing strategies than organizations with little global sourcing.
Global sourcing organizations also report overall higher costs associated
with appraising suppliers. At the median, organizations with more global
sourcing spend $0.48 per $1,000 in revenue to appraise suppliers, whereas
organizations with minimal global sourcing spend $0.33 per $1,000 in revenue. For organizations with $5bn in revenue, those conducting more global
sourcing spend $750,000 more to appraise suppliers than organizations with
minimal global sourcing.
Organizations conducting more global sourcing are more efficient in some
areas. These organizations need fewer full-time equivalent (FTE) personnel for
ordering materials than organizations with minimal global sourcing. This may indicate that organizations sourcing globally use more resources to set up their sourcing strategy, but need fewer employees to conduct purchasing once the strategy is
in place. Organizations with heavy global sourcing further streamline the procurement process by purchasing primarily from strategic suppliers, or those with
which the organizations have arrangements that make a strategic difference to
both parties. At the median, organizations with heavy global sourcing also have
significantly fewer active suppliers in their supplier master file per procurement
FTE: 3. 96 versus 77. 88 held by organizations with minimal global sourcing.
When making sourcing decisions, organizations should consider all the areas of
the procurement process impacted by global sourcing, not just the up-front cost
savings. Changing political environments and legislative actions (such as the
three free-trade agreements recently passed by the U.S. Congress) can also
affect an organization’s bottom line.