Global Sourcing

Presented By:
PRADEEP KHARVI
MBA I - 6146

Department of Management Sciences (PUMBA), University of Pune

Definitions of Global Sourcing
Strategic procurement concept with an
international focus. A cross-border
search is conducted for suitable
suppliers that meet specific quality, time
and price requirements.
Definitions of Global Sourcing
Global sourcing is defined as the
process of identifying, developing, and
utilizing the best source of supply for
the enterprise, regardless of location
GLOBAL SOURCING:
ON THE RISE
There is no disputing that global sourcing is
on the rise
the U.S. alone imported more than $1.3
trillion worth of goods and services in 2001
most companies report a 10% to 35% cost
savings by sourcing from low-cost-country
suppliers
But what exactly does global sourcing entail?
But what exactly does global
sourcing entail?
Global sourcing entails identifying, evaluating,
negotiating and configuring supply across
multiple geographies to reduce costs,
maximize performance and mitigate risks.
Sourcing is also a cornerstone of total cost
management (TCM), a technological and
process framework for the optimal alignment,
management and control of the total cost of
ownership (TCO) of supply relationships.
But what exactly does global
sourcing entail?
Every sourcing decision requires companies to
balance the tradeoffs of cost, performance,
and risk. However, these factors are
heightened when sourcing globally because
of the variability of non-price or "hidden" cost
factors such as cross-border freight and
handling fees, complex inventory stocking
and handling requirements, and a multitude
of documentation and regulatory compliance
requirements.
Global Sourcing Factors
Global sourcing factors that must be
understood and balanced can be segmented
into six categories:
Material costs
Transportation costs
Inventory carrying costs
Cross-border taxes, tariffs, and duty costs
Supply and operational performance
Supply and operational risks
Supply Manager Role
To understand and manage these factors,
supply managers must stay abreast of tariffs,
trade regulations and geopolitical landscapes
that are constantly in flux.
Supply Managers also required to have a solid
understanding of the Harmonized System (HS)
Code and International Commerce Terms
(Incoterms).
HS Code
An HS Code is a globally accepted six- to 10-
digit number used to dictate the fees and
restrictions associated with goods crossing a
border. Globally, there are hundreds of
thousands of HS codes, each representing a
different tariff or potential trade restriction.
International trade requires that these codes
be assigned (i.e., "harmonized") prior to any
goods crossing a country border.
International Commerce Terms
(Incoterms)
There are 13 standard International
Commerce Terms (Incoterms) that
define the roles and responsibilities of
buyers and suppliers for cross-border
shipping. Each Incoterm assigns a
different set of responsibilities, costs
and liabilities to the buyer and the
seller.
Labor costs dominate IT budgets; offshoring is a
way to reduce these costs
Europeans Offshoring Everything
Low-Cost Service Delivery Drives
Firms Decisions To Go Offshore
Europeans Cut Back on Internal and
Contractor Staff
Offshore Providers Meet European
Firms Expectations
Many services are offered: the
Indians have moved up the value
chain
Program Management

Architecture, IT strategy, process, quality,

Consulting strategic sourcing
Testing, app dev, maintenance, prod support
Application
services
Infrastructure
Monitoring, server mgmt., DBA, DT mgmt.
services Contact centers, collection services, KPO
Business (research/analytics), mortgage processing,
legal services, tax preparation, claims
process processing
outsourcing
Indian retail chains step up global
sourcing
Global retailers like Wal-Mart and Tesco
do it all the time. Now its the turn of
Indian retail chains, whore exploring
ways to step up global sourcing of
merchandise for shoring up margins
and offering the best price to
consumers.
Indian retail chains step up global
sourcing
These days, the likes of Big Bazaar, Ebony,
Shoppers Stop, Westside or even Subhiksha
are looking to source merchandise at the
lowest rates globally.
Future Groups Pantaloon Retail India has just
set up global sourcing offices in Hong Kong
and Mainland China the first overseas
sourcing operation by any domestic retail
chain.
Indian retail chains step up global
sourcing
For retail chains across the globe, the world is becoming a single
market. We are looking at markets across the world from where one
can source merchandise at the lowest price. We have opened our
global sourcing offices in Hong Kong and China a few days back,
Future Groups chief executive officer Kishore Biyani told ET.

Retailers will be able to achieve economies of scale by setting up

overseas sourcing offices,
Spencers Retail president JH Mehta.

This allows a big opportunity for retail chains to differentiate from

competitors. While international sourcing currently accounts for 5% of
our total pie, its growing at more than 50%,
Shoppers Stop MD B S Nagesh.
Indian retail chains step up global
sourcing
Ebony Retail Holdings CEO Lalit Kumar said
the markets where Indian chains are focusing
for bargains are China, Malaysia, Indonesia,
Middle-East and Europe.

Popular merchandise include home decor,

fashion accessories, furniture and consumer
electronics. Much of it is also sold as private
labels, added Mr Kumar.
Indian retail chains step up global
sourcing
However, retailers are going slow in sourcing
certain categories due to high import duties.

Though retailers are keen to source from

low-cost production economies, a major
impediment is the high duty structure in
certain segments like apparel,
Landmark COO Himanshu Chakrawarti.
Sourcing Plans India Retail
At present, nearly 90 per cent of Wal-Mart's
procurement is from China.
The retail chain had recently come to India to
shop for leather products and booked initial
orders worth around $100 million with five
Indian companies.
The government is also hardselling India as a
sourcing base to retail chains like Tesco of the
UK, K-Mart, Target Corporation, JC Penney
and some global sports goods retailers.
Sourcing Plans - APCC
American Power Conversion Corporation, the US-based leading
provider of global, end-to-end availability enhancement
solutions, has drawn up a blueprint to turn its Indian
manufacturing facility in Bangalore into a global sourcing centre
for catering to its principals in the fastest growing Asia-Pacific
region.

Though the wholly-owned Indian subsidiary is the third of its

kind in the region, with the other two located in China and the
Philippines, the parent company is already sourcing 60 per cent
of Bangalore plant's production for its global requirements,
thanks to the low-cost but high-value advantages the facility
offers.
Sourcing Plans - MUL
India's biggest carmaker Maruti Udyog Ltd is toying with the
idea of sourcing components from the global market as part of
its strategy to become more cost competitive.
"In Maruti, for example, we are looking to go in for worldwide
procurement," MUL Managing Director Jagdish Khattar said in
New Delhi.
The sourcing of auto parts from the international market means
sourcing components from the best and the cheapest supplier
globally, he told an annual convention of the Automotive
Component Manufacturers Association of India.
Giving an example of 'opportunity share' mindset, he said,
"There were four million two-wheelers sold three years ago. If
we can upgrade 10 per cent of them to cars, there is an
opportunity for 400,000 entry-level car sales this year."
References
Infosys Global Sourcing - http://globalsourcing.infosys.com/cases/case-studies.asp

Cognizant - http://www.cognizant.com/html/news/cogcommunity/cc2006_euroPresent.asp

Outsource World.com - www.outsource-world.com/newyork/pdf/Jim%20Murphy.pdf

Wipro - www.wipro.in/resources/events/no2_+idc.pdf

Accenture - www.accenture.com/NR/rdonlyres/928C5220-C4E6-4AAE-AEC9-
ED19731E25C0/0/Globalsourcinginpractice.pdf

Rediff

Economic Times Website (http://economictimes.indiatimes.com/)

Wikipedia

Forrester Research