Sourcing is defined as the process that involves the flow of manufactured goods and components from one place to another in the form of procurement. Global Sourcing means having production and or assembly performed in countries outside of a company’s home market (Dickerson, 1995, p. 294). Along with other demand driven sectors apparel retail industry is also at the forefront of the global sourcing trend. According to analysts (Dowing, 2002), Leading retailers in developed countries, such as walmart, and creefour, depend heavily upon overseas manufacturers as their source of merchandise.
In case of branded manufacturers like Liz Claiborne and Nike, which do not own their factories but use manufacturing partners to produce apparel products under their respective name brands. Supply Chain Characteristics of Global Sourcing Companies struggle to secure low unit costs on supply chains to serve the volume and economic growth. The countries that offer low wage rates and skilled labor became the major concentration for the industries like garments, engineering, software and ITES.
The basic characteristics of the global sourcing
However, the basic characteristics of the global sourcing are as follows:
- Global sourcing is not adjacent: When the sourcing exclusively avoids local sourcing it is considered as global sourcing; And the Global chains must extend in terms of time and geography.
- Global sourcing can be implemented at any point of time in ordering, provisioning, manufacturing, and shipping.
- The gross margin gain is should be high than normal traditional sourcing
- The nature of capacity is incremental with a lower break even point.
The investments in capacity should be less or should be supportive to the existing capacity.
- Return on capital should be high than the existing lines.
Risks in Global Outsourcing
The global outsourcing risks can be classified into 2 categories:
- One is External Risks whish operate in the external environment of the outsourcing company,
- Second one is Internal risks that pertain to the internal environment of the outsourcing company.
External risks
- Demand risk: These can be potential or actual disturbances that hinder the flow of product, services, cash and information, that rise within the network, and operate between the sourcing firm and its market.
- Supply risk: This is the upstream equivalent of demand risk; This risk can be termed as potential or actual disturbances to the flow of product or information emanating within the network, upstream of the focal firm.
- Environmental risk is the risk associated with external regulations, policies of the operating country government, low – high of the markets, war and floods that impact the economy and pricing of the supplies, etc. ,
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