Global sourcing Essay

1) What is worldwide sourcing?Global sourcing is defined as the process of identifying, developing, and utilizing the source of tag on for the enterprise by means of expanding purchasing activities internationally. It is a part of post reengineering activities which is an useful measure of sign upting embody. Global sourcing is a typical example of irrelevant construction outsourcing immobiles which process construction by distributing each process of construction work to vendors instead of running on its own.Such construction method not only does squinch be in scathe of managing construction sites much(prenominal) as prod greet and equipment cost including vehicles, but also is existence adopted by discordant companies for rate-adding construction caution (CM) project. For instance, global sourcing was utilized when building Daewoo Business touch on at Warszawa, Poland, on March, 1997. The process of erecting the center was alloted to vendors construction was put to death by VOICE(England), design done with(predicate) RTKL(U.S.), facility controlment was tariff of Dongwoo which is a department of Daewoo Group, hotel counseling by Hilton hotel(U.S.).2) Global sourcing factorsGlobal sourcing factors that must be understood and balanced send word be segmented into 5 categories. early factor is material cost. The bottom line of execution of global sourcing is reduce cost by minimizing material cost. Another crime syndicate is deportation cost. various(a) costs including inventory delivery cost potbelly be dwindled through global sourcing. Moreover, significant amount of transportation expense can be reduced when marketing products at outsourcing regions. Cross-border taxes, tariffs, and duty costs atomic number 18 tierce factor which form global sourcing. Instead of relying on domestic return but rather outsource each process internationally, costs can be reduce by avoiding concern barriers which include cross-border tax, tariff and duty cost.Next factor is supply and operational performance. With effective resource management and cheap labor cost, supply and operational performance can be efficiently managed which enables global sourcing companies to manufacture high quality-low price merchandises. The last category of global sourcing is supply and operational riskinesss. Cultural and geographicaldisparities can cave in redundant costs such as labor cost and transportation cost. If not managed thoroughly, they can militate as huge risks in cost of conducting sourcing.3) Advantages of global sourcingThere are three major merits of performing global sourcing gumption to diversitys, reduction of cost, and trade barriers avoidance. To begin with, global sourcing allows a firm to develop capacity to cope with changes in market condition. Importing many raw materials and resources economically and steadily can be done through global sourcing. With such teeming resources, a firm can flexibly adopt to envir onmental alterations when confronting unexpected economic crisis. Secondly, average 20% of cost saving is possible. Components of products or raw materials procured from abroad is advantageous in terms of price. Furthermore, many countries such as American and Europe are sourcing materials to cut cost in terms of dissemination industries.As a result, chinaware has become the hub of take base for global sourcing. Even in incase of Korea, sourcing products from chinaware are 30%40% cheaper than Korean domestic ingenuouss. In particular, simple functional merchandizes whose design and quality are relatively little considered are thumpingly influenced by global sourcing. Consequently, over 70% of commodities and habilitate are imported from China. Last merit of global sourcing is evasion of trade barriers. In case of global sourced goods, the price is lower, leading to economical purchase, by avoiding trade barriers such tariffs and cross-border taxes. On top of that, firms are able to discover restricted raw materials and resource. Thus, unique and competitive products can be created.2. Case-Study (Li&Fung)1) gatewayLi&Fung is a professional work company which specializes in global sourcing and was founded in 1906. It functioned as a broker between Asian manufacturers and foreign traders and expanded as a trading company later on. Today, Li&Fung acts as a professional sourcing and distribution firm focusing on toys and cloth. Becoming an intermediary, it reconstructed thebusiness by forming it as a liaison and manager of various supply chains. Li&Fung is the representative of smokeless manufactory without owning any equipment and factories regarding ware process from raw material to final goods and distribution of final products.2) Business area / Present conditionLi&Fung won the rewards in Fabulous 50 selectied by Forbes Asia, 50 for 2012 from Morgan Stanley, and The most prestigious companies 25 from Business week. The gross sales of Li&Fung i n 2007 was 92.4 billion in Hong Kong dollars, approximately 36% increase in sales compared to that of 2006.Net income reached 30 billion dollars(2007) and Li&Fung Co. Ltd. succeed in gaining 19.8% increase in sales (110.7 billion Hongkong dollars)than that of previous year. after 1998, foreign companies such as The Limited, Gymboree, American Eagle, Warner Brothers, Abercrombie & Fitch, Bed, Bath& Beyond, Tesco, Avon Products, Levi-Strauss, Reebok puddle become major customers of Li&Fung, and Royal Ahold, conceive Jeans, Bebe also joined as major customers of Li&Fung in 2000. As a result, Li&Fung currently has 68 offices in the 38 countries, and shareholders be 17,900. In addition, it consists of 107,000 applyees engaged in the business associated with Li&Fung, especially 40,000 link businesses only in the United States. Thus, it can be said that Li&Fung has entered plateau stage as a company settling modernistic form of SCM rather than just existence a simple trading firm.3) Platform / Operation SystemLi&Fung is one of the enterprises which effectively employ platform strategy. In terms of strategy, Li&Fung adequately balances SRM and CRM strategy to manage producers and customers. Li&Fung distributes textile component orders to vendors as soon as receiving orders from textile industries. It makes most of 15,000 subcontractors which are located around the globe. When producing a jacket, for example, Li&Fung procures materials from diverse vendors outshell is from Korea, Zipper from Japan, lining is done from Thailand, and trademarks and thread from Hongkong. Fabric is dyed in Southern Asia, China sews, and finally quality inspection and packaging are done in Hongkong. Then, headquarter in Hongkong generally manages cash flow and value-added process.4) succeeder FactorsSuccess factors of Li&Fung can be categorized into three elements. The depression factor is IT evolution. Through IT development, product lead time dwindled through forming net among p roducers and customers, and even efficiently manage vendors. Another facet is SRM and CRM, especially have strength on SRM. Li&Fung analyze customers ask and scrutinize supply chain to meet the desires. Since firms tend to focus on maximizing their capability instead of in accordance with needs, Li&Fung can otherwise strive to fortify supply chain or value chain for customers.In other words, the key role of Li&Fung is to study manufacturers of supply chain to the intended direction. For that specific purpose, it establishes education to producers on befuddled network management rather than having strict control establishment for managing vendors, and emphasizes on trust and active empowerment. Lastly, Li&Fung follows 30/70 rule, which is to set a standard(from 30% to 70% of total production) on production quota to Li&Fung.This enables Li&Fung to have loose liaison among subcontractors. Minimum 30% of total production allows Li&Fung to possess minimum supply from each subcontract ors and prevention vendors from creation subordinates can be done by setting maximum 70%. The core objective of this principle is to assure vendors of gaining huge profit from being a member of the network and on the other hand guaranteeing tractableness of business and availability of a room for growth. Other vendors also well-being from the principle by being expose to opportunities to work with others, which help them to ensure and come up with innovative ideas. Such principle demonstrates value of Li&Fung on making supply chain more dynamic and lively. Thus, change in partners frequently happens in supply chain of Li&Fung. In conclusion, Li&Fung shows contradictory management of pursuing stable and long-term union whereas also demanding loose network instead to forming strict organization.3. Problem & reply1) Wage stagnation / Pricing pressureThe first problem of Li&Fung is wage stagnation of China. China accounts for 60% of total global sourcing of Li&Fung, which means t hat shift in China daze Li&Fung heavily. After the economic liberalization of China, China has been able to attract world companies as the most suitable production base due to cheap and abundant labor. As a consequence of substantial growth, Chinas wage has been increasing 16% annually. As labor cost takes up the largest function of garment industrys costs, Li & Fungs first half of 2011 net income dwindled 18%. Therefore, there is high necessity for finding a new production base(a new partners) and gain price competitiveness through such measure. Second problem is overseas buyers desire to lower supply pricing due to high uncertainty from global recession. As shown in the average import price of textile in the U.S. graph on the right, the average import price has been continually decreasing, from $3.18 in 2006 to $3 in 2009. Heavy pressure on supply pricing is having negative impact on net income of Li&Fung.2) China & U.S Trade betrothal terzetto adversity is potential trade dis putes between the United States and China. This trade conflict, which is referred to as protectionism, is noteworthy of a notice as 69% of total production of Li&Fung is sold to the United States. The United States has criticized China on the bills exchange rate manipulation, along with accusation of exchange dumping. In addition, branch 421 is an article which can be executed in a piazza where increased import of Chinese products acts as a severe cost to American domestic industries. Accordingly, it is inevitable to exclude potential trade conflict between two countries on account of high possibility of implementing additional countervailing duty by executing section 421.3) Expanding partners in Southern AsiaIn preparation for deterioration of Chinas production environment and falling competitiveness of China as a sourcing region, Southern Asia is evaluated as the most practical alternative for strategic sourcing of Li&Fung. In terms of piece change in world textile industry sourcing, diminution of China is noticeable, as 7%, whereas Vietnam and Bangladesh show growth, respectively displaying 1% and 20% of sourcing ascent rate.To demonstrate suitability of sourcing to Banladesh, environment of Bangladesh such as social nucleotide and facilities, and educational level should be thoroughly examined. Nevertheless, wage of Bangladesh is much cheaper than that of China, Bangladesh being one third that of China, in terms of only considering unit labor cost. Furthermore, Bangladesh is likely to be significantly equipped with garment-industry infrastructure judging from the large number of textile industries sourcing to Bangladesh. Therefore, it is no hasty conclusion that Bangladesh is the most inhibit region for new production base of Li&Fung.4) Quality management systemControlling over 15,000 vendors is demanding and the possible drawback is failure of consistency in quality. Since quality is prerequisite these days, stricter vendors quality management sy stem should be made. One of the tools that Li&Fung can utilize and apply stricter is vendor accordance index. There are six indexes Li&Fung should affirm attention to efficient operation, productivity, process innovation, ensuring the quality, purchase the appropriate law material, and good working condition of labor. By balancing and fulfilling following vendor compliance indexes, Li&Fung will be able to afford products to customer with recollective quality. 4. ConclusionThe concept having used by Li&Fung is highly familiar to us as global sourcing is also deployed by domestic companies such as Samsung and LG. Global sourcing can be divided into two factors risk element and opportunity element. These two elements are in trade-off sexual congress which means that change in one element accompanies the other, while endeavoring to maximise opportunity element. Thus, taking advantage of opportunity and risk element in a timely manner is the premise for successful global sourcing a nd in-depth depth psychology on local region and strategy should be followed when implementing global sourcing.