Written by Marijn Overvest | Reviewed by Sjoerd Goedhart
Fact Checked by Ruud Emonds | Our editorial policy
Global Procurement — The Ultimate Guide
What is global procurement?
- Global procurement is a strategy used by organizations to find the most cost-effective location for sourcing supplies.
- Global procurement helps large businesses maintain a steady supply of high-quality and affordable goods.
- It is important to monitor logistics as global procurement can involve hidden expenses, political risks, and financial uncertainties.
What is Global Procurement?
Global procurement is a procurement strategy done by the organization to identify the most cost-effective location for creating supplies.
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.
I have created a free-to-download editable procurement process: 7 steps template. It’s a PowerPoint file, together with an Excel file, that can help you with your global procurement. I even created a video where I’ll explain how you can use this template.
Why is Global Procurement Popularthis 2025?
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. 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
Here’s a side-by-side of the 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.
Procurement Expert’s Advice on Global Procurement
For this article, we asked a seasoned procurement professional to share his insights regarding global procurement.
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. Can you share a personal example of global procurement? What can readers learn from this?
“As a buyer for a large food retailer, I often source products on a global level. The reasons behind this are twofold: firstly, certain raw materials or products are only available in certain parts of the world, and secondly, there are cost advantages to be gained. These cost advantages are mainly driven by the fact that certain producers are so large that economies of scale translate into a cost advantage despite additional costs such as transport. Through my experience, I have learned that when sourcing products, it is important to not only look at the cost price and additional costs but also to ensure that the supplier understands our business and our processes. They must understand the dynamics of the local market and apply the same requirements about quality and processes. In certain countries, these requirements may not be as strictly organized, and as a result, a supplier may not fit into our process, which can lead to a lot of extra work.”
Follow-up Question: In your experience, how did you manage and build relationships with global suppliers to ensure they understood your business, processes, and local market dynamics?
“In my experience, managing relationships with global suppliers involves understanding cultural differences and aligning expectations. While face-to-face meetings are helpful, it’s essential to grasp the supplier’s way of doing business and adapt accordingly. For instance, negotiation styles can vary widely between regions, so it’s crucial to dive into cultural nuances for effective communication. Additionally, ensuring alignment on standards and expectations, such as delivery schedules and product quality, is vital to avoid costly complications. Ultimately, cultural sensitivity and adherence to agreed terms are key to successful global procurement relationships.”
2. What should readers know about global procurement?
“Through global sourcing, a company gets access to markets where products can be produced more cheaply, where specific raw materials are available, or where they are cheaper, or where qualified workers can be found. But global sourcing not only has advantages, there are also risks involved that must be made clear and taken into account in the decision to source globally.”
3. What is the biggest misconception about global procurement? What do most people get wrong about it?
“My opinion is that the idea of achieving price advantages through global procurement may seem advantageous for a company. However, there are several other factors to consider that can have direct and indirect costs, making an attractive offer ultimately expensive. Additionally, the risks associated with global procurement cannot be allocated to a specific cost per product, and should be taken into account when making the overall decision of whether or not to source globally.”
4. What are the unique challenges and opportunities in managing global procurement operations?
“Opportunities are making use of cost and/or economies of scale that exist in other countries and that are so big that it is more economical to produce or purchase the products there. Or the availability of qualified employees which are less available in the company’s existing production country. The biggest challenges are risks associated in the sense of how strict the compliance with CSR regulations are and risks in political and economic instability in those countries which could impact the availability of products.”
5. How can organizations navigate the complexities of global procurement, such as cultural differences and regulatory compliance?
“By understanding the benefits and challenges of global sourcing, establishing relationships with suppliers, and monitoring and evaluating performance. It’s important to manage the risks. This includes assessing potential risks and understanding their impact on your business. It also includes understanding the legal and regulatory framework in each country and having a plan for dealing with any potential problems.”
6. What skills do procurement professionals need to stay competitive in global procurement?
“The skills that every procurement manager must possess include negotiation, communication, market research, analytical ability, financial management, and strategic sourcing skills. However, for global sourcing, it is essential to know about risk management, ethical sourcing, and supplier management. Along with these, excellent communication, adaptability, and management skills are also crucial.”
7. What should organizations keep in mind when trying to enter global procurement?
“They should consider the total impact of global sourcing, not only possible savings in production costs. But also, total costs including transport, storage, finance, cash flow impact, insurance, local production audits, quality, logistics capacity, and trade regulations.”
Conclusion
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 practice of sourcing goods and services from suppliers located outside your home country. It involves identifying the most cost-effective suppliers globally to enhance efficiency, reduce costs, and access a wider range of products and services.
How can organizations effectively implement global procurement?
To implement global procurement successfully, organizations need to establish robust sourcing strategies, conduct thorough market research, and gather comprehensive data on potential suppliers. This process also includes assessing cultural differences, regulatory compliance, and logistics management.
What distinguishes global procurement from local procurement?
Global procurement focuses on sourcing materials and products from international suppliers, enabling companies to leverage global markets for cost advantages and specialized resources. In contrast, local procurement typically involves sourcing supplies from within the same country, which may limit options and cost-saving opportunities.
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.