GLOBAL

SOURCING
DECISIONS
DR. MD. TAMZIDUL ISLAM
WHAT IS SOURCING?

• Sourcing is the process of procurement of goods or services

from some external sources.
• “Purchasing is the procurement of the materials, supplies,
machines, tools and operation of a manufacturing plant.”
PRINCIPLES

RIGHT RIGHT
TIME SOURCE

SOURCING
RIGHT
QUANTITY

RIGHT
RIGHT
QUANTIT
PRICE
Y
WHAT DO WE SOURCE?
TYPES OF SOURCING

Purchasing for resale

TYPES OF SOURCING

Purchasing for conversion

CONTINUUM OF RELATIONSHIP

Arm’s length relationship Collaborative relationship

Vendors Traditional Certified Partnership Strategic

suppliers suppliers type alliances
8 BEST EXAMPLE: WIN-WIN
SOURCING

At Honda Motor Company, during meetings with suppliers, the

executives write their proposed actions and agreements on a
whiteboard. When all the items have been discussed, the meeting is
over. The contents of the whiteboard are then typed up and two copies
are printed, the supplier and the automaker sign them, and the
contract is complete. Thereafter, both sides focus on executing the
plan. Honda and its suppliers thus avoid the drawn-out, querulous
negotiation process that is common at other automakers, a process
that can last months and even then sometimes blow up without
reaching a resolution.
SOURCING PHILOSOPHIES
EXAMPLES OF GLOBALIZATION

• The US imports fruit from Chile.

• The US company NIKE manufactures shoes in
Indonesia.
• When you call the DELL help center, you will speak to
someone in India.
• US Hollywood movies are pirated and sold for cents on
the dollar in China.
• Any given car will have parts from many different
countries, including Korea, Germany, and China, and
then have been assembled in the US.
WHAT IS GLOBALIZATION

PRODUCTS & SERVICES INFORMATION

CULTURE TECHNOLOGY

PROCESS

HUMAN RESOURCES KNOWLEDGE

IMPETUS FACTORS
• Political:
– WTO championing
– Bi-lateral agreements
– Regional groupings e.g. EU,
ASEAN
– Falling trade barrier
– Easing country borders
• Financial:
– Labor cost arbitrage
– Skills availability
• Logistics: Infrastructure
• Technological:
– Computer Technology
– Power, cost reductions
– Network Technology
– Bandwidth, cost,
availability, reliability
– Telephony-quality, cost
– Rise of the Internet
• Others:
• Spread of English
• Familiarity-TV exposure, cultural
convergence
• Ease and lower cost of travel
• Time differences advantage
• Growth of FDI
• Large population pools e.g.
India/China
• IP protection improving
FOUR MODES OF SUPPLY OF SERVICES
In relation to that, General Agreement on Trade in Services (GATS), which is administered by
the World Trade Organization (WTO), identifies four modes of supply of services:
• Mode 1 — Cross-border supply: The service that is supplied from one country to
another. In this particular case, only service crosses the border but supplier and
consumer remain in their respective countries. Example: An Indian company develops
and sends the software to a US company.
• Mode 2 — Consumption abroad: In that case the consumer physically travels to
another country to obtain the service. Example: Students travelling abroad for study.
• Mode 3 — Commercial presence: When the service is supplied by a firm in one country
via its branch, agency, or wholly-owned subsidiary located in another country.
Example: A U.S. bank establishes a subsidiary in Mexico to sell services to local clients.
• Mode 4 — Presence of natural persons: When an Individual suppliers travel
temporarily to another country to supply services. Example: A doctor travelling to
another country to deliver the service.

The World Bank (2008). Handbook of International Trade in Services, New York: Oxford
University Press, pp-49
THE ROLE OF MNES

• The impact of MNEs on Host country

• The impact of MNEs on Home country

DISCUSSION POINT
 HOW COMPANIES GO
INTERNATIONAL

• EXPORTING
• LICENCING
• FRANCHICING
• JOINT VENTURE
• STRATEGIC PARTNERSHIP
 DECISION POINT

• In-sourcing
• Outsourcing
• Off-shoring
FACTORS TO BE CONSIDERED

• Lead time
• Transportation cost
• Environmental cost
• Local market opportunity
• Response to the market change
• Reliability and dependency
VALUE ADDED BY
OUTSOURCING
• Capacity Aggregation: Dell, Magna Steyr for BMW, Mercedes and
Chrystler
• Inventory and Warehousing Aggregation
• Transportation aggregation
• Procurement aggregation: exceptions Motorola & HP
• Information aggregation
• Receivables aggregation: Brightstar in Latin America
• Relationship aggregation: Less contacts
• Lower costs and higher quality
BUSINESS ASSESSMENT

Core: Invest (high priority

for investment and
management attention and
resources)
Essential but
non-core:
Outsource
Non-
essential &
Non-Core:
Divest or shut
down
 OUTSOURCING-VALUE
PROPOSITION
• Focus on Core business
• Reduced operating expenses
• Shareholder value
• Asset management
• Technology integration
• Skill availability
 OUTSOURCING PROCESS
MANAGEMENT

Sourcing Strategy & need Service Provider

Client
demand statement:
• Organization assessment Engagement & Solutioning:
• Core Competencies • Info/data gathering
• Market scan/partnership •Solution design
opportunity •Response dev.
• Make or Buy decisions •Selection process
• Risk Analysis •Value proposition
•RFI/RFP

Sourcing decision and

operational control: Contract dev. & Negotiation:
• SLA • Costing/pricing
•Goals: efficiency, quality, • Payment models
innovation •T & Cs
• Change process •Provision for change
• Relationship Both Both • Governance model

Transition Management
RISKS OF OUTSOURCING

• The process is broken

• Underestimation of the cost of coordination
• Reduced customer/supplier contact
• Loss of internal capability and growth in third party
power
• Leakage of sensitive data and information
• Ineffective contracts
 Risk Assessment

L-H H-H
Cost may
increase
Information Degraded
Leakage customer
service

L-L H-L
Probability
Communication

Severity
• https://cscmp.org/
• https://www.supplychainquarterly.com/