GLOBAL SOURCING

Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service.

Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs.

The whole point of global sourcing is to find better sources of supply around the world, offering improved quality and lower prices.

HOW TO MAKE GLOBAL SOURCING WORK

·        Source to a country with low labor costs and good quality control.

·         Source to a country where you can take a plane ride with comfort and ease.

·         Source to a country where you can understand the language.

·         Source to a country where you can respect and abide by the laws.

·         Source to a country where you can trust the people you do business with.

REASON WHY TO SHOULD CONSIDER GLOBAL SOURCING

• ·     Access to raw materials. If your company uses raw materials that are not abundant in your own country then you can lower your supply risk by sourcing globally
• ·      Access to cheaper wages. Manufacturing processes that are labour-intensive can be sourced more cheaply from countries where wages are lower than in your own country.
• ·        Reciprocal trading. Global sourcing works both ways as it involves both a buying organisation and a selling organisation.
• ·     Learning how to do business in another country. Knowing the culture and ways of working of other countries can be a significant benefit when you want to sell to them.
• ·      Increasing supply capacity. If there is a current or potential shortage of a key material or component for your own manufacturing operation then you may have a serious supply risk.
• ·   Stimulating competition domestically. Sometimes suppliers in your own country can become complacent if they think that they have a major share of the local market.

DISADVANTAGES OF GLOBAL SOURCING

Can Contribute to Exploitative Practices

Transnational corporations are often criticized for the working conditions in their overseas facilities, and there are many instances of severe human rights and environmental violations stemming from the lack of regulation in host nations.

Domestic Job Losses

Global sourcing, sometimes referred to under the blanket-term "outsourcing," is commonly criticized by domestic labor advocates and economic nationalists alike.

JUST IN-TIME (JIT)

DEFINED

JIT can be defined as an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials, work in process, and finished goods). JIT also involves the elimination of waste in production effort. JIT also involves the timing of production resources (i.e., parts arrive at the next workstation “just in time”).

LOOKING BACK

      JIT originated in Japan.

      Driven by a need survive after the devastation caused by the war.

      JIT gained worldwide prominence in the 1970s.

      Toyota Motor Co. developed JIT .

THREE ELEMENTS OF JIT 

JIT AND LEAN MANAGEMENT

JIT can be divided into two terms: “Big JIT” and “Little JIT”

      Big JIT (also called Lean Management) is a philosophy of operations management that seeks to eliminate waste in all aspects of a firm’s production activities: human relations, vendor relations, technology, and the management of materials and inventory.

      Little JIT focuses more narrowly on scheduling goods inventory and providing service resources where and when needed.

JIT PARTNERSHIPS  

1) JIT partnerships exist when a supplier and purchaser work together to remove waste and drive down costs

2) Four goals of JIT partnerships are:

      Removal of unnecessary activities.

      Removal of in-plant inventory.

      Removal of in-transit inventory.

      Improved quality and reliability.

JIT LAYOUT

1) Reduces another kind of waste -“Movement”.

2) Places material directly where needed.

3) Example Toyota.

JIT LAYOUT TACTICS

      Build work cells for families of products.

      Include a large number operation in a small area.

      Minimize distance.

      Design little space for inventory.

      Improve employee communication.

      Use poka-yoke (fail safe) devices.

      Build flexible or movable equipment.

      Cross-train workers to add flexibility.

CONCERNS OF SUPPLIER

      Diversification – ties to only one customer increases risk.

      Scheduling – don’t believe customers can create a smooth schedule.

      Changes – short lead times mean engineering or specification changes can create problems.

      Quality – limited by capital budgets, processes, or technology.

      Lot sizes – small lot sizes may transfer costs to suppliers.

JIT SCHEDULING

      Better scheduling.

JIT SCHEDULING: EXAMPLE FORD MOTOR COMPANY

RADIO-FREQUENCY IDENTIFICATION (RFID)

WHAT IS RFID?

Radio-frequency identification (RFID) is the wireless non-contact use of radio-frequency electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags attached to objects. The tags contain electronically stored information. Some tags are powered by and read at short ranges (a few meters) via magnetic fields (electromagnetic induction). Others use a local power source such as a battery, or else have no battery but collect energy from the interrogating EM field, and then act as a passive transponder to emit microwaves or UHF radio waves (i.e., electromagnetic radiation at high frequencies). Battery powered tags may operate at hundreds of meters. Unlike a bar code, the tag does not necessarily need to be within line of sight of the reader, and may be embedded in the tracked object.

Radio frequency identification (RFID) is part of the family of Automatic Identification and Data Capture (AIDC) technologies that includes 1D and 2D bar codes. RFID uses an electronic chip, usually applied to a substrate to form a label that is affixed to a product, case, pallet or other package.

WHY USE RFID?

1) Use RFID if you want to wirelessly identify something without line of sight.

 Line of sight means that one could draw a straight line going directly from the reader to the object without interruption. This is literally what is done for bar codes via a laser, but mirrors are used to make the laser look a little fancier. If the laser can't "see" the object it won’t be read.  This is very intuitive to us whenever we go to the supermarket and a bar code reader has the bar code faced toward the scanner beam.

2) Use RFID if you want a simple wireless means to store a small amount of information on things, and even better: change the information dynamically.

 RFID tags usually contain 96-512 bits of information on them and each tag can be read in less than 5 million or 5 thousandths of a second. Modern standards allow hundreds or even thousands of tags to be read in an apparently simultaneous fashion. Most tags allow you to dynamically change this ID and other types of user data tens of thousands to hundreds of thousands of times. In short, tags are very versatile.

 WHERE WE USE RFID?

1)      SUPERMARKET = bar code scanner

2)      CUSTOM CLEARANCE = radio-frequency identification

BENEFITS FROM RFID

Some of the main benefits that RFID can provide are:

      The solution does not require a line of sight access to be able to read tags.

      The tag can trigger security alarm systems if removed from its correct location.

      Reader and tag communication are not orientation sensitive.

      Automatic scanning and data logging is possible without human intervention.

    Each tag can have a unique product code like standardize Electronic Product Code (EPC-code) and still hold more information in an internal memory bank.

      Each item can individually be labelled.

   Tag internal data can be comprehensive, unique in parts/common in parts, and is compatible with data processing in ERP system.

    System provides a high degree of security and product authentication - a tag is more difficult to counterfeit than a simple barcode.

   The supporting data infrastructure can allow data retrieval and product tracking anywhere provided the reader is close enough to the tag.

NEGOTIATIONS

Negotiation is a dialogue between two or more people or parties, intended to reach an understanding, resolve point of difference, or gain advantage in outcome of dialogue, to produce an agreement upon courses of action, to bargain for individual or collective advantage, to craft outcomes to satisfy various interests of two people/parties involved in negotiation process. Negotiation is a process where each party involved in negotiating tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise.

Negotiation occurs in business, non-profit organizations, government branches, legal proceedings, among nations and in personal situations such as marriage, divorce, parenting, and everyday life. The study of the subject is called negotiation theory.

TYPES OF NEGOTIATIONS

DISTRIBUTIVE NEGOTIATIONS

Distributive negotiation is also sometimes called positional or hard-bargaining negotiation. It tends to approach negotiation on the model of haggling in a market. In a distributive negotiation, each side often adopts an extreme position, knowing that it will not be accepted, and then employs a combination of guile, bluffing, and brinkmanship in order to cede as little as possible before reaching a deal. Distributive bargainers conceive of negotiation as a process of distributing a fixed amount of value.     The term distributive implies that there is a finite amount of the thing being distributed or divided among the people involved. A distributive negotiation often involves people who have never had a previous interactive relationship, nor are they likely to do so again in the near future. Simple everyday examples would be buying a car or a house.

INTEGRATIVE NEGOTIATIONS

            Integrative negotiation is also sometimes called interest-based or principled negotiation. It is a set of techniques that attempts to improve the quality and likelihood of negotiated agreement by providing an alternative to traditional distributive negotiation techniques. It focuses on the underlying interests of the parties rather than their arbitrary starting positions, approaches negotiation as a shared problem rather than a personalized battle, and insists upon adherence to objective, principled criteria as the basis for agreement. Integrative negotiation often involves a higher degree of trust and the forming of a relationship. It can also involve creative problem-solving that aims to achieve mutual gains. It is also sometimes called win-win negotiation.

STRATEGIC OF NEGOTATIONS

Some of the different strategies for negotiation include:

      Problem solving - both parties committing to examining and discussing issues closely when entering into long-term agreements that warrant careful research.

      Contending - persuading your negotiating party to concede to your outcome if you are bargaining in one-off negotiations or over major 'wins'.

      Yielding - release a point that is not vital to you but is important to the other party valuable in ongoing negotiations.

      Compromising - both parties for going their ideal outcomes, settling for an outcome that is moderately satisfactory to each participant.

      Inaction - buying time to think about the proposal, gather more information or decide your next tactics.

BARGAINING

            Bargaining occurs between all forms of human groupings including individuals, groups, organizations, and countries. The condition under which “bargaining” takes place is when two or more parties have divergent interests or goals and communication between the parties is possible.

WHAT IS BARGAINING?

            A bargaining situation can then be defined as an interaction where parties with certain disagreements confer and exchanges idea about a possible solution until a compromise is reached or the bargaining is terminated.

HOW IS AN AGREEMENT MADE?

The bargaining agents, which include representatives of staff members, meet to negotiate a draft agreement. Once the agreement content has been agreed in principle between the bargaining agents, the Agreement will then be put to staff members for their approval. If a valid majority of staff members vote in favor of the agreement.

TYPES OF BARGAINING

DISTRIBUTIVE BARGAINING

            A two –party, varying or zero-sum schedule is suitable depending upon the payoff schedule involved. In a varying-sum schedule bargaining situation, the profits (and/or losses) of the respective bargainers, when added together, need not always equal the same fixed amount, thus the term varying sum.

INTEGRATIVE BARGAINING

            Integrative bargaining exists where there are areas of mutual concern and complementary interest. The situation is a varying-sum schedule such that, by working together, both parties can increase the total profits available to be divided between them.

PSYCHOLOGICAL BARGAINING FRAMEWORK

            The findings by psychologists can be categorized under six areas, each representing a major factor assumed to affect bargaining. (1) General bargaining predispositions. (2) Payoff system. (3) Social relationship with the opponent. (4) Social relationship with significant others. (5) Situation factors. (6) Bargaining strategy.

QUANTITY DISCOUNTS

            The buying firm must consider its total cost of accepting a quantity discount. Specially, the holdings cost associated with carrying larger quantities must be compared to the expected benefit of the discounts. In others words, quantity discounts must be tied to the buying firm’s cost structure. The supplier must not discriminate with product pricing. The legal issues related to pricing will be discussed in the next section.

PRICE DETERMINATION

            The effective buyer must become an expert for the item purchase. Some purchasing managers believe in buying at the lowest possible price without consideration for delivery time, acceptable quality levels, or the appropriate quantities. The effective buyer in a competitive environment will more than likely obtain purchase goods and services at a market price given that quality, delivery, and proper quantities are appropriate. If you buy items for one-half the market price without obtaining appropriate quality, delivery, or quantity standards, your firm would be rendered noncompetitive.

            The objective of the purchasing department is to buy the right materials from the right supplier at the right time and at the right price. Perhaps the most important factor associated with the purchasing decision is the business environment and the power imbalance between the buying and supplying firms.

      Demand is the key determinant for market oriented company. Demand is the starting point for all activities. Simply, the average customer will be demanding different product quantities, depending on price. Law of the market says that demand and price are counter proportional (price increase leads to demand decrease and vice versa ).

      Competition has a significant influence to price determination of market oriented companies. Prices need to be adjusted in order to address the competition. Every company should research market and competition, prior to launch of the new product. Based on market survey and the strength of the company the prices can be the same, lower or higher.

      Costs is while demand and competition are external factor, the costs are internal. The costs must be embedded in every stage of price determination process. There are several methods of cost embedding into price:

1.) Costs Plus – company calculates the costs and increase price for the specific profit.

2.) Markup – price based on cost increased for amount of specific markup percentage.

3.) Target Return Method – calculated required markup, in order to achieve return on investment.

4.) Profit Maximizing is the price where the marginal profit equals marginal cost.

5.) Breakeven Analysis – is the number of units sold that generates profit that can cover cost. This point does not have profit nor lost.

      Life Cycle pricing approach analysis the current phase of product life in market. Entering phase usually requires higher sales prices in order to payback initial development costs. Also customers are willing to pay more for a new product. Growth phase is bringing the market stabilization. Prices are more or less stable. Declining phase is the last part of product life cycle. Prices are still going down.

      Sales Channels have the different shopping occasion. Consequently the pricing is adjusted to sales channel. For example, the same product is cheaper in hypermarket than on petrol station.

      Government is usually do not interfere into price determination. Exceptionally it may limit maximal prices for a certain products. Still, government is influencing pricing, since the taxes & custom duties are the part of the price.