In today's rapidly evolving global economy, the survival and growth of businesses, especially multinational corporations, heavily rely on effective sourcing strategies. Sourcing and supply chain management have become vital components of a company's overall strategic approach. In this blog post, we will explore the evolution of procurement practices in multinational companies and shed light on the concept of supply chain management in international business.
The Role of Supply Chains in Market Competition
Martin Christopher -Emeritus Professor of Marketing & Logistics once said, “Supply chains compete, not companies”. True competition lies not between companies but between supply chains. This quote highlights the increasing importance of supply chain management in modern business competition. Let's understand how supply chain management has transformed over time.
Early Stage: Autonomous Sourcing
In the early stages, companies primarily relied on autonomous sourcing. At this phase, companies were not sensitive on pricing. Autonomous sourcing allowed them to smoothly acquire the necessary resources, albeit at higher prices compared to domestic enterprises of similar status. During this stage, companies were less concerned about price and more focused on obtaining the required goods.
Intermediate Stage: Outsourced Procurement
As markets developed and competition intensified, the simple autonomous sourcing approach could no longer meet the demands of companies. In the intermediate stage, corporations shifted towards outsourced procurement. They outsourced their sourcing activities to specialized service providers with the required purchasing capabilities and resources, aiming to achieve higher-level sourcing services and higher efficiency. At this point, companies started prioritizing the quality of sourcing services and supplier reliability. Factors such as business credit, service levels, and compliance became crucial when selecting high-quality sourcing partners.
Advanced Stage: Strategic Sourcing
With intensified market competition and a deeper understanding of sourcing management, companies entered the advanced stage - strategic sourcing. In this stage, companies not only focused on the efficiency of sourcing but also established partnerships that played a critical role in managing the entire supply chain. To excel in strategic sourcing, companies required an in-depth understanding of all aspects of the supply chain, including production, operations, distribution, and services. They established specialized procurement management teams and departments to lead the procurement process and achieve strategic procurement goals.
Alternative Sourcing Methods
Apart from establishing independent sourcing departments, companies also adopt alternative sourcing methods, such as engaging sourcing agents or collaborating with supply chain management companies. These supply chain management companies offer comprehensive services to optimize global supply chains.
The Role of Supply Chain Management Companies
Supply chain management companies specialize in integrating global supply chains, aiming to achieve optimal supply chain performance with minimal costs. These companies have extensive networks of high-quality suppliers across multiple countries and regions. As SVI GLOBAL, a US-based company with over 20 years of experience in providing supply chain management services, operates in China, US, Mexico, India, Korea, Indonesia and Malaysia, we have access to thousands of reputable suppliers across different various countries. We coordinate and combine these suppliers to meet specific customer requirements and streamline the production process from product design and factory selection to material sourcing, testing, production planning, quality control, shipping, and final delivery to customers.
Trends in International Supply Chain Management
Shifting Focus: From Managing Sourced Goods to Managing External Supplier Resources
In international sourcing, a key trend is the shift from solely managing purchased goods to managing external supplier resources. This is made possible by establishing long-term strategic partnerships between buyers and suppliers, creating a mutually beneficial relationship. Through this partnership, timely sharing of information on production, quality, services, and transaction periods becomes possible. It enables suppliers to strictly adhere to requirements and deliver products and services as needed. Suppliers can align their plans with production demands, resulting in timely procurement. Ultimately, this collaborative approach integrates suppliers into the production and sales processes, leading to win-win outcomes.
The Zero-Defect Supplier Strategy has become a common practice in companies' sourcing and supply chain management. It involves seeking suppliers who strive for perfection. When selecting suppliers, companies also consider the environmental conditions in the supplier's location, which are part of the four fundamental elements of international procurement: value flow, service flow, information flow, and fund flow.
This refers to the value-added flow of products and services throughout the entire process, from resource bases to end consumers. It includes value-adding activities such as product modifications, packaging, customization, and service support carried out by multiple suppliers.
This focuses on logistics services and after-sales support systems based on customer demand. It involves the efficient flow of products and services between multiple suppliers, core enterprises, and customers, including reverse logistics processes like returns, repairs, recycling, and recalls.
This entails establishing transactional information platforms to ensure bidirectional flow of information among supply chain members, including transaction data and inventory updates.
This primarily concerns the speed of cash flow and the optimal utilization of logistics assets.
Diversification of Sourcing Methods
Traditional sourcing methods and channels are rapidly evolving towards diversification. Firstly, this is evident in the combination of global and local sourcing. Companies now align their production activities with the comparative advantages of different countries. Similarly, their sourcing activities have become more globalized, allowing them to explore the global market and find the most suitable suppliers, rather than limiting themselves to specific regions.
Secondly, a balance between centralized and decentralized sourcing is sought. The degree of centralization depends on various factors, but the overall trend is towards greater centralization in sourcing functions. Service-oriented companies tend to adopt centralized sourcing more frequently than manufacturing, while small enterprises tend to employ it more than large corporations.
Thirdly, a combination of multiple and single suppliers is observed. In general, companies adopt a multi-source supply strategy, where purchases from a single supplier do not exceed 25% of the total demand. This approach mitigates risks while avoiding excessive dependence on any specific supplier.
Increased Focus on Social Responsibility and Environmental Impact
Majority of companies have formulated and implemented corporate social responsibility codes, which require suppliers and contracted workers to comply with labor standards. Companies arrange for their employees or independent audit agencies to conduct regular on-site evaluations of contracted factories, commonly known as factory certification or audits. Major retailers and renowned brands in the United States require factories to pass the social compliance audit. Some companies have established dedicated departments to address labor and social responsibility matters in the manufacturing countries.
Meeting labor standards, including workers' age, wages, working hours, and facility conditions, has become crucial for conducting business with large companies. Products exported from China to European and American countries, such as clothing, toys, footwear, furniture, sports equipment, and daily hardware items, are subject to scrutiny regarding compliance with labor standards.
These trends in international procurement reflect a growing emphasis on collaboration, diversification, and social responsibility. As the global market continues to evolve, businesses are adapting their procurement strategies to navigate the changing landscape and meet the demands of a socially conscious marketplace.
If you're a business engaged in oversea sourcing, it's time to partner with SVI Global, the leading supply chain management company with over 20 years of experience. Our global expertise, extensive supplier network, and comprehensive services can transform your sourcing practices and optimize your supply chain. Whether you need assistance with product design, factory selection, material sourcing, quality control, or efficient logistics, SVI Global has you covered. Contact SVI Global today and let us elevate your international business to new heights!