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Caution! International Suppliers Ahead!

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By Richard G. Weissman, C.P.M.

All organizations operate in a global economy, though many organizations operate internationally without even knowing it! Customers and suppliers with domestic addresses often have international elements to their supply chain (note: these suppliers need not be European or Asian--suppliers in Canada and Mexico are also international suppliers!) All purchasing professionals should be aware of the international relationships within their supply chain so they can prepare for and manage the ramifications of the complicated international sourcing process. At a minimum, purchasing professionals ought to understand and manage international sourcing issues by asking the following three questions:

  1. Do I truly need international suppliers?

    Believe it or not, not all reasons for sourcing globally are valid. "Because everyone else is," is not a reason with legs; nor is "To prove that I'm a progressive, worldly manager." Cost pressure, on the other hand, is a highly compelling reason given that international suppliers typically offer lower cost labor. What's more, depending on the supplier's nationality, exchange rates may offer further benefits to the transaction. Another reason for sourcing abroad is that international suppliers may be better than existing domestic sources in quality, availability of materials, technical services, and distribution. An inarguable reason to source from abroad is that certain materials and technologies may only be available from international suppliers. Finally, and perhaps best of all, a customer may direct its supplier to use a specific international supplier: in this case, you truly need the international supplier.

  2. What business issues do I need to worry about?

    In order for international sourcing to offer the appropriate return on investment, it is important that the overall business goals of the company are aligned with its supply chain management goals. The decision to source and buy internationally should be broad-based, as there are operational, financial, and legal ramifications to consider. Once this decision has been completed, business issues to consider are:

    • Should the company buy from a U.S. based sales office, direct from the supplier, or through an import broker, sales agent, import merchant, or trading company?
    • Should the company buy products using foreign currency or U.S. dollars?
    • Will credit terms be established or will a letter of credit be required?
    • Are there tariffs, duties, and customs issues to consider?
    • What body of law applies? Is the company protected under the Uniform Commercial Code?

  3. How can I ensure necessary supplier performance?

    Once the fundamental business issues of working with international suppliers are resolved, the purchasing organization should finally consider operational issues.

    • Delivery Issues. The estimated lead time of the order must include order processing and credit issues, the manufacturing cycle of the products, the entire transportation cycle, including local transport to an airport or port, processing through local customs requirements, staging and loading, the actual transport by air or sea, weather conditions, U.S. customs issues, and delivery to the final destination, usually by truck. This process needs to be documented and understood by all parties, including methods of information sharing and expediting.
    • Political Problems. How high is the risk that political and labor problems may disrupt supply? International suppliers may be located in areas of the world characterized by labor and popular unrest. The result is late delivery that profoundly affects operations and customer service at the local level. Buyers must constantly remain aware of world events and know how to ask their international suppliers difficult questions about how politics and world events might affect delivery, and devise contingency plans should the worst case scenario become reality.
    • Hidden Costs. Make sure to consider all costs when buying from international sources, including commissions to customs brokers, exchange rate differentials, foreign taxes, damage and theft, packing and marking, customs documentation, import tariffs, and transportations costs. The actual purchase price may be low, but it is only one element of cost and its seductiveness has led many buyers astray.
    • Quality. Because distance makes rejects even more costly (in time and money) than they otherwise might be, buyers and sellers must clearly agree on the material specifications and quality requirements. Are their provisions for the materials to be inspected before shipment? Is there a first article approval process? What is the process for handling rejected material.
    • Culture and Customs. Respect for and understanding of diverse cultures is the single most important element to successful international supplier relationships. Purchasing professionals must be knowledgeable of and careful about the basics of a country's dress, religious holidays, gestures, foods, and social strata. Err on the side of caution. It is the responsibility of buyers to understand these issues and communicate them throughout their organizations as required.

The Internet and improved telecommunications simplify the effort to locate and communicate with international suppliers. E-mail, video-conferencing, and web-based technologies also may improve the communication process, but there may also be the need to actually visit suppliers to perform a quality audit, determine supplier capabilities, solve problems, or build the relationship. Some organizations will have buyers travel to international sites, some will establish an international purchasing office (IPO), and others may rely on qualified third party organizations to assist in the process. Some may actually combine all three to ensure adequate supplier selection and compliance.

Even if they have not specifically designed an international sourcing strategy, the global nature of business means that purchasing organizations must ask the above questions regularly. Those who have devised or are about to devise a global sourcing strategy should proactively understand and prepare for the unique concerns of international sourcing. Despite the concerns, progressive purchasing organizations will search the world for the best applicable sources. Planning and execution will ensure success.

Richard G. Weissman, C.P.M., is the Managing Director of Weissman Training & Development, a firm that focuses on increasing the effectiveness of the supply chain management process. (978-468-6390;

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SupplierInsight also provides the Supplier Scoreboard(TM), a web-based system for managing supplier scorecards across a company's supply base.

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