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Global Procurement 2023 – The Ultimate Guide for Professionals
- Global procurement enables cost-effective materials, skilled labor, increased capacity, and product technology improvements.
- Global procurement involves financial and political risks and potential hidden costs, making it vital to monitor logistics.
- Consider global procurement for a constant flow of quality, cost-effective products in a large business.
Whenever one encounters the word global procurement, confusion usually sets in. Is it the same as regular procurement? Since procurement is a system analytics that is filled with processes, global procurement must mean that it’s more than just the regular thing.
For this article, you are going to learn the concept of global procurement. You will learn about the 5 stages of global procurement, its advantages and disadvantages, and what it will look like in the future.
Once you’re done reading this article, you’ve already grasped the concept of global procurement and are ready to use it to grow your career.
Why is Global Procurement Popularthis 2023?
Global procurement is also known as global sourcing. It is the procurement strategy where an enterprise works to identify the most cost-effective location for creating supplies. It doesn’t matter if the location is found in another country; global procurement works perfectly in sync with identifying a good location for product manufacturing.
In the past, global procurement was already an idea put forward by CPOs and procurement directors who know that the Internet will pave the way for a revolution in the procurement industry. But since locally sourced supplies and materials were still considered cheap, that’s why no one bothered taking a second look at the idea.
And then enter the COVID pandemic of 2020. It was truly a dark time for business, as most companies suddenly shut down because the lockdowns prevented people from coming in to work. The same can also be said with procurement teams trying their best to do their work while also trying to keep themselves safe from contracting the dreaded virus. With global procurement now fast becoming a thing among companies, procurement teams now have a safer way to source materials that are coming from outside the country.
Overview of Advantages and Disadvantages of Global Procurement
The Stages of Global Procurement
Now that we’ve talked about global sourcing and how it can help procurement teams in keeping the procurement process working, it’s time for your experts here in Procurement Tactics to talk about the different stages of global procurement.
These stages will be key to creating your own global procurement process. We’re also going to cover the said stages in our Negotiation Course For Procurement Professionals, so you might want to check it out right after reading this article.
But for now, here are the 5 stages of global procurement:
- Preliminary Research – Since global procurement is about searching for the right location for product manufacturing, research should be the very first thing to do for this process. The company identifies the important and unimportant operational activities. The company should also work on analyzing customer and market requirements, as well as identifying competitors. The whole concept of the preliminary research should be to develop the company’s prospect markets, business objectives, and brand positioning.
- Supplier and Market Evaluation – In this stage, the company should start creating a list of supplier selection benchmarks. These benchmarks will be used to find the most appropriate vendors or suppliers. The suppliers should also fit the criteria based on the research done by the sourcing team. Market analysis can be done by the purchasing platform; data that comes from the analysis can then be checked for more information.
- The Sourcing Event – The sourcing event is also called the selection of the supplier. In this stage, the company will now get ready in choosing the right supplier that will sign the agreement with the company. A detailed list of available suppliers within the location should be present and each should pass the benchmark given by the sourcing team.
- Implementation – After choosing the supplier, a performance analysis schedule should be developed. It should be outlined by the activities present in the implementation process. The implementation is usually done by an implementation team often led by the procurement agent. It should also be scheduled along with a strategy approved by the company.
- Performance Monitoring – Once everything is done, performance monitoring should come next. This will measure whether the global procurement process is working correctly. The performance of the suppliers will be checked either independently and concerning the resources and processes applied by the supply partners.
The Advantages of Global Procurement
So what exactly are the advantages of global procurement?
Should I even try to explain that in this article? Well, since we do have the disadvantages right below, it’d make sense to talk first about the advantages, right?
Without further ado, below are the well-known advantages of global procurement:
- Costs are cheaper – With global product manufacturing enabling countries with cheaper sources of labor, then companies have the opportunity to get high quality materials for as little costs as possible. Factories in China, India, and Taiwan are able to produce as much quality materials but with costs that are cut more than half compared to those products that are in the United States.
- Skilled workforce – We’ve already talked about the cheap labor that comes from countries such as China, Taiwan, and India. We know that labor in these countries comes surprisingly cheap, but only a few know that some talents in these countries can actually compete with the workforce coming from the United States or from Europe. It’s because the workers from Asia are able to learn and implement advanced manufacturing techniques in their operations, thus improving the quality of the products coming from them.
- Production Capacity Increased – With more capital invested in the countries that have lower labor costs, it’s only natural for these companies to increase their production capacity too. Simply put, more materials are built and produced, thus companies are now able to buy more materials when needed.
- Technology Improved – With more money being invested in certain supplies or materials that are needed, product technology is also improved. More innovations are planned and built to help companies in using the materials.
The Disadvantages of Global Procurement
While global procurement is an excellent way for companies to bounce back on the procurement processes during this time of health and economic anxiety, there are also a few disadvantages that global procurement may incur for the company:
Exposure to financial and political risks in different countries – A company that invests in sourcing from a different country for product manufacturing may also have to think about getting involved in financial and political problems in the said country. Companies that invest in building manufacturing plants in most third-world countries always seem to have issues with political issues and corruption problems.
Global procurement has hidden costs Because of the different time zones and cultural differences, global procurement may incur hidden costs for the company. Take for example the difference in salary rates and working hours of the local workers versus the international workforce. The company should consider this carefully.
Increased monitoring costs or logistics– Because products are manufactured in a different country, a company may have to think about rising monitoring costs, especially if the product is considered a valuable commodity. Think of how much money should be invested in the actual delivery of the product from one country to the next. Shipping costs are already a big deal, since traversing the finished product from one continent to the next is always going to take some time. And today’s pandemic issue is also not going to help with this problem, since some countries where product manufacturing is outsourced are the ones that are hit the most by the COVID pandemic. Should there be a huge need for the product, special arrangements must be made to ship or deliver the product from the factory to the stores selling the products. Which will take a lot of money to make it all work.
Now when do you consider global procurement? Global sourcing should only be considered if your business is big enough that it needs a constant stream of quality and cost-friendly products in order to work efficiently. Local sourcing can be considered if the company still needs a constant stream of products, but pricing and quality are not much of a concern.
Frequently asked questions
What is global procurement?
Global procurement is the sourcing of supplies internationally. You or your company are looking to buy or look for supplies outside the country.
How to do global procurement?
Global procurement requires strong sourcing practices and a lot of market and product data gathering.
How is global procurement different from normal procurement?
Normal procurement is usually done locally. Global procurement, on the other hand, is the sourcing of products internationally.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.