GLOBAL SOURCING
GLOBAL SOURCING
Before components can be manufactured, raw materials must be procured. The least complicated way of sourcing inputs is through domestic sources. Using domestic sources allows the firm to avoid problems such as language, distance, currency, wars and insurrections, strikes, political problems, tariffs, and more complicated transportation channels, to name a few. For many firms, however, domestic sources may be unavailable or more expensive than foreign sources. For a country such as Japan foreign procurement can be critical, since nearly all of its uranium, bauxite, nickel, crude oil, iron ore, copper, and coking coal and approximately 30 percent of its agricultural products are purchased from abroad. Japanese trading companies such as Mitsubishi came into being to acquire the raw materials necessary to fuel the manufacturing process.
Whether raw materials are available domestically or not, firms must devise global sourcing strategies that take changing world economic events into account. The strong dollar from 1980 to 1985 contributed to U.S. firms' stepped-up outsourcing, that is, sourcing production outside of the corporate organization or outside of the country. For example, if Ford buys components from a non-released firm or if it produces components in its plants in Brazil for assembly in the United States, it is practicing outsourcing. It would seem to follow that a weakening of the dollar during the latter half of the 1980s would have driven sourcing back on shore, but the situation is more complex than that. A 1987 survey of 107 major U.S.-based manufacturers revealed that foreign sourcing as a percentage of total purchases by U.S. firms increased from 8 percent in 1980 to 15 percent in 1985-1986. There seems to be a difference of opinion in the report, however, over whether this share of foreign purchases will increase over the next decade. The major reasons for outsourcing tend to be lower costs and improved
ana quality. Many manufacturing firms find that materials costs are a significant percentage 01 total costs of manufacturing, and that nonmatenals costs as a percentage of total cost are falling. That would imply that firms need to continue to search for the most economic source of supply of materials.
In spite of the benefits of sourcing abroad, firms find that they face a variety of problems, such as the length of supply lines, inventory levels, and II!til"Jc currency fluctuations. In addition, many firms have noted improvements in
quality, design, and cost of U.S. producers as key reasons to return to the
domestic market. Nearly half of the firms in the 1987 survey said that they had decided to return to the domestic market for some of their purchases;6 however, many domestic suppliers disappeared in the early 1980s when their customers moved abroad to take advantage of cheaper sources of supply.
Before components can be manufactured, raw materials must be procured. The least complicated way of sourcing inputs is through domestic sources. Using domestic sources allows the firm to avoid problems such as language, distance, currency, wars and insurrections, strikes, political problems, tariffs, and more complicated transportation channels, to name a few. For many firms, however, domestic sources may be unavailable or more expensive than foreign sources. For a country such as Japan foreign procurement can be critical, since nearly all of its uranium, bauxite, nickel, crude oil, iron ore, copper, and coking coal and approximately 30 percent of its agricultural products are purchased from abroad. Japanese trading companies such as Mitsubishi came into being to acquire the raw materials necessary to fuel the manufacturing process.
Whether raw materials are available domestically or not, firms must devise global sourcing strategies that take changing world economic events into account. The strong dollar from 1980 to 1985 contributed to U.S. firms' stepped-up outsourcing, that is, sourcing production outside of the corporate organization or outside of the country. For example, if Ford buys components from a non-released firm or if it produces components in its plants in Brazil for assembly in the United States, it is practicing outsourcing. It would seem to follow that a weakening of the dollar during the latter half of the 1980s would have driven sourcing back on shore, but the situation is more complex than that. A 1987 survey of 107 major U.S.-based manufacturers revealed that foreign sourcing as a percentage of total purchases by U.S. firms increased from 8 percent in 1980 to 15 percent in 1985-1986. There seems to be a difference of opinion in the report, however, over whether this share of foreign purchases will increase over the next decade. The major reasons for outsourcing tend to be lower costs and improved
ana quality. Many manufacturing firms find that materials costs are a significant percentage 01 total costs of manufacturing, and that nonmatenals costs as a percentage of total cost are falling. That would imply that firms need to continue to search for the most economic source of supply of materials.
In spite of the benefits of sourcing abroad, firms find that they face a variety of problems, such as the length of supply lines, inventory levels, and II!til"Jc currency fluctuations. In addition, many firms have noted improvements in
quality, design, and cost of U.S. producers as key reasons to return to the
domestic market. Nearly half of the firms in the 1987 survey said that they had decided to return to the domestic market for some of their purchases;6 however, many domestic suppliers disappeared in the early 1980s when their customers moved abroad to take advantage of cheaper sources of supply.
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