Home > Research in practice > Performing an effective global sourcing: supplier selection criteria and investments in the supply chain

Performing an effective global sourcing: supplier selection criteria and investments in the supply chain

by Ruggero Golini and Luca Savoldelli – Università degli Studi di Bergamo

Global souring is often seen as a way to reduce costs, but when considering all the implied costs (for instance, taxes, transportation, insurances, etc.) the costs can become even higher. To analyze how to keep these costs down, we classified companies in the following way:

The green group represents locals who purchase mainly within their region, the blue group identifies those performing global sourcing from around the World with higher procurement costs and, finally, the red group represents global enterprises that source in the world but with competitive procurement costs. Of the 585 plant considered within the IMSS V database (www.manufacturingstrategy.net), 302 are green, 101 are blue and only 48 are red.

So what do red companies different? We compared their criteria of selection of suppliers and the investments made in the supply chain.

The selection criteria are very similar among the groups: the most important factors are: quality of product / service and delivery performance (that is, delivery speed and reliability). Lowest price comes third also for global sourcing companies. Interestingly, the main difference between the red group and the others are on the less important factors: logistical costs, innovation and co-design and availability to share information.

Figure 1 – Supplier selection criteria (importance measured from 1 to 5)

When looking at the investment in the supply chain the difference between the red group and the others is much clearer. Companies performing global sourcing competitively, do invest more in coordination with suppliers, supplier development and vendor rating and in reviewing their supply strategy for instance, through supply base consolidation.

Figure 2 – Investment in the supply chain in the last 3 years (measured from 1 to 5)

In conclusion, the companies in the red square , that are those performing global sourcing at lower costs, seem to adopt a collaborative approach with their suppliers. These companies select few suppliers on their willingness to establish long-term relationships and then they invest a lot in sharing information and take joint decisions.

However, the literature reports several risks in this strategy that should be carefully considered. First, when sharing information, there is the risk of information spill-over and suppliers can even become competitors. Next, in emerging markets there are constantly new suppliers available, so it is important to continue scouting the market seeking for the best opportunities and be ready to switch supplier. In our sample, for instance, red companies are also those that use significantly electronic instruments to scout new suppliers. Finally, large global suppliers require high volumes and many orders so bind them with long term contracts con be difficult and not viable to smaller companies.

Categories: Research in practice
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