1. Global Sourcing

2.  Domestic Sourcing  Same Language  Same Cultural/Ethical Expectations  Same Legal System  Same Banking System  Same Transportation  No Customs, Tariffs

3. Global Sourcing  Why Look for Global Sources?  Lower Total Cost (Landed)  Access to Markets (Countertrade)  Access to Raw Materials  Access to Technologies  Other Reasons  Quality  Competition

4. Global Sourcing  Finding Global Suppliers  Directories  Trading Companies  Embassies/Consulates  Trade Shows  Countertrade  Logistics Issues  INCOTERMS  Other Logistics Costs

5. Global Sourcing  Problems With Global Sourcing  Good Specifications  Cultural Issues  Language Difficulties  Long Lead Times  Paperwork  Payment Issues  Political Risk  Currency Risk  Security Issues  Sustainability

6. Global Sourcing  Methods  Intermediaries  Foreign Subsidiaries  International Purchasing Offices  Direct Purchases  Inspection Services  Customs Brokers and Freight Forwarders

7. Global Sourcing: Communication  Understanding the True Barriers  Speaking  Reading and Writing  Slang and Colloquialisms  Two Word Verbs  Vocabulary  Conversational  Business  Technical

8. Global Sourcing: Communication  Translators  Local,  At Destination  Types  Translating Written Materials  Business Cards and Titles

9. Global Sourcing: Payment  Domestic Payment  Payment Up Front (Avoid)  COD  On Account  International Payment  Payment Up Front (Avoid)  Against Documents  Letters of Credit  On Account

10. International Negotiation  Age, Gender  Status, Authority  Formality  Numbers and Team Composition  Professionalism  “Yes” and “No”

11. International Negotiation  Silence  Subtleties  Deadlines  Cultural Respect  On Being Alone

12. Make/Buy and Outsourcing

13. Make/Buy  Products We Never Make  Products We Always Make  In Between Products: Make/Buy

14. Make/Buy  Industry Standards, Proprietary Products and Make/Buy  Procurement from Suppliers  Procurement by Manufacture  Fluid Decision  Revisit at Regular Intervals  As Economic Conditions Change  As Internal Conditions Change  Always Maintain Internal Capability

15. Reasons to Make  Quantities Too Small  Quality Too Critical  Timing Too Critical  Trade Secrets (for a time)  Cheaper  Keep Crew Busy  Avoid Sole Source (perhaps)  Union Shop  Unreliable Supplier

16. Reasons to Buy  Quantities Too Large  Supplier Quality Acceptable  Have Sufficient Lead Time  Lack of Necessary Competencies  Lack of Capacity  Cheaper  Reciprocity

17. Vertical Integration  Cost and Responsiveness  Insure Performance  Scheduling  Control  Boeing

18. Outsourcing  Strategic Decision  Activity is Not Core Competency  Will, In Future Completely Depend on Suppliers  Will No Longer Maintain Internal Capability  Management of Outsourced Activities

19. Outsourcing  Our Core Competencies  Suppliers’ Core Competencies  Dependence on Suppliers  Strategic Vulnerability  Technology Transfer  Source from Competitors’ Suppliers  Supplier Exploitation  Price Creep  Service

20. Outsourcing  Firms Rethinking Outsourcing  Rising Wage Rates  Rising Transportation Costs  Currency Exchange Rates  Long Lead Times  Recent Survey (Global Retail Goods Firms):  50% of firms in survey are considering moving out of China  26% actually doing it

21. Supplier Selection

22.  Types of Purchases  Industry Standard  Custom Assemble from Common Parts  Custom Manufacture from Common Materials  Custom from New Technologies

23. CostsCosts Correct Transaction Cost Time Total trans. cost Admin cost Material cost Logistical cost Transaction origin Transaction conclusion

24. Typical Measured Costs  Material Cost  Service Cost  Administrative Cost  PO Cost  Receiving  Accounts Payable  Freight

25. Costs Typically Not Measured  Back Orders  Late Deliveries  Defective Material Costs  Costs of Rejected Goods  Prod’n Stop Costs  Project Delay Costs  Air Freight  Cost of Warranty Failures  Extra Inventory Cost  Services Incorrectly Performed  Invoice Errors  Highly Variable Lead Times  Freight Damage

26. CostsCosts Time Total trans. cost Transaction origin Actual conclusion Expected transaction Cost overrun Time delay Specification questions from supplier Raw material delays Freight damage Invoice errors

27. Who Pays? It All Depends On What You Negotiate

28. High Patent M Prop Tech A R K E T Ind Std Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive Criticality Grid

29. Criticality Grid: High Market  Sole Source  High Market Concentration  High Price Volatility  High Supply Industry Capacity Utilization  Patented Product  Proprietary Technology

30. Criticality Grid: Low Market  Industry Standard Items (Some Differentiation)  Commodities  Non-proprietary Indirect Supply Items  Many Substitutes

31. Criticality Grid: Low Internal  Little Use  Low Volumes  Unimportant Technology

32. Criticality Grid: High Internal  High Volume  High Dollar Expenditure  High Price Sensitivity  Pervasive  Key Operating Characteristic

33. Criticality Grid: Managerial Objectives High Patent Look Ahead Strategic Alliances M Prop Tech A R K E Market Driven Market Driven T Min Admin Cost Supply Continuity Ind Std Automate Operational Alliance Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

34. Criticality Grid: Contract Applications High Patent Look Ahead Evergreen Agreements M Prop Tech Strategic Alliances A R K E Petty Cash Multi-Year T Purchase Cards Systems Contracts Ind Std Blanket Orders Operational Alliances Commodity Low Low High INTERNAL Volume, Importance Volume, Pervasive

35. Review

36.  Legal Issues  Ethics  Supply Strategies  Commodity Strategies  Supplier Strategies  Specifications  Supplier Selection

37. Questions, Comments, Observations, Conclusions, Arguments?