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Smart tips to help increase profitability and streamline international purchasing
With today's market place becoming even more competitive, globally, a question that often arises within many corporate cultures and small businesses is: "how do we know our company is paying the best possible price and sourcing our materials and products from the best possible source?" As different countries develop expertise in varying industries, manufacturing, and product development, it can be a daunting task to keep up with the developments of specialized, product activities in multiple countries.
Fortunately, there are a number of resources, both domestically and internationally, that can assist with global sourcing needs. Discussed here are domestic global sourcing companies and overseas sourcing representatives (OSR's).
First and foremost, before your company decides to outsource its offshore purchasing and/or manufacturing, you must be sure that by doing so your company can save at least 20% of its current purchasing activity. This saving should include all standard and hidden international purchasing costs.
Some of the standard costs (in addition to quoted prices) include: shipping, cargo insurance, customs brokerage fees, import duty, dock fees and letters of credit fees.
Some of the hidden costs can include: contract development fees with new suppliers, site visits to supplier factories, shipping fees due to customs clearance delays, customs fees due to inaccurate customs and purchasing documentation, delays at port due to shipping congestion/wait times, anti-dumping fees, and product quota fees.
To help your company minimize these hidden costs, utilizing the services of a domestic global sourcing company can help you reach the cost savings your company demands.
Global sourcing companies help make the international buying process as easy as buying from a local supplier. Sourcing companies offer the service of managing the entire off-shore purchasing and manufacturing process. Since sourcing companies are familiar with the process, they can generally complete your buying transaction more quickly than if your company were to start the process from scratch. The cost savings to your company is often noticed in the reduction of hidden cost payments. However, plan to pay a good sourcing company about 10%-20% on top of the base price. This fee is offset by some of the benefits listed here.
Benefits to using a global sourcing company:
- Represent the buyer, not the supplier.
- Offer you quick access to trustworthy factories and suppliers with expertise in specific manufacturing processes and product types.
- Generally focus their efforts in a few target industries and countries.
- Can offer engineering and prototype development services for new products.
- Provide price comparisons between multiple suppliers (in multiple countries if necessary).
- Manage international communications, translations and foreign site visits.
- Accept financial risk.
- Understand & manage customs, logistics and international shipping procedures.
- Can act as the importer of record.
- Manage disputes and handle international product exchanges, if necessary.
- Can act as your project manager & buying agent by managing the production or sourcing for projects requiring the use of multiple foreign suppliers.
- Manage the process of third party inspections for: production run checks, product safety testing and cargo inspections.
Global sourcing companies are often used as outsourced, sourcing departments. Generally, companies that can't afford to own a foreign subsidiary office or to house a full-time sourcing department, often use global sourcing companies to manage the details of specific, larger scale projects.
The second option is to hire an overseas sourcing representative (OSR). Having an onsite representative in the country of origin can be a benefit if you are looking for a very particular product in a particular country. Your company can expect to pay a good OSR about 5-15% on top of the base price. This fee is offset by some of benefits listed here.
Benefits to using an overseas sourcing representative (OSR):
- They know the culture and country customs well
- Can handle price negotiations on your behalf
- Can help you locate small, unusual suppliers/manufacturers
- Communicate in the native language
- Manage quality inspections on your behalf
- Introduce you to suppliers with good business reputations and worthy credit
- Obtain price quotes on your behalf (and manage price negotiations)
- Pay suppliers on your behalf
- Work on commission
OSR's are a great resource if you are working on smaller scale sourcing projects. However, you must be aware that some agents are also paid by suppliers, can be difficult to find in a timely manner, and are difficult to remove from your supplier relationship if the need arises.
Global sourcing is a very specific activity that takes time and money to manage correctly. Yes, any business can be successful by working directly with foreign suppliers. However, the advantages of utilizing third party resources can significantly improve the efficiency of your international purchasing activity. Third party resources can provide quick access to trusted, credit worthy foreign suppliers, speed the time to project completion and offer you professional guidance that will significantly reduce hidden costs. This reduction of hidden cost payments will increase company profitability in the long run. For your next sourcing project, consider investigating third party resources. These agencies can provide you with more pricing options, vendor comparisons, and expertise in streamlining the supply chain/international purchasing process.
Michelle Bonn is the owner of Expedient Trade, LLC, an international sourcing and manufacturing service company, based in Buffalo, NY. For questions about this article or other international business information, contact Expedient Trade by visiting their website at http://www.expedienttrade.com/.