Page 258 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 11: Supply Chain Logistics Design

The use of global sourcing has been the driving force behind the development and expansion of Notes
the global economy. Including suppliers from around the world in the bidding process for large
contracts reduces prices and increases competition. The creation of this type of infrastructure
allows firms to create subsidiary offices in locations around the world. There are three main
industries that are ideal for this strategy: manufacturing, skilled services and telephone call
centres.
Manufacturing costs vary internationally due to currency conversion and the cost of living in
different countries. The costs of labour and materials are lower in developing nations than in
North America. This difference translates into significant savings in salary and benefit costs.

Skilled services such as purchasing, engineering, information technology professionals and
consultants are a growing area of global sourcing. The level of skill and knowledge held by
these professional allows them to provide high quality services to their employers. Due to the
lower cost of living in different nations, many firms are building their professional services
departments outside North America.
Telephone call centres have grown exponentially in India and other countries where English is
the primary language. The staff, equipment and construction costs for these facilities are
significantly less than in North America. In addition, there is a large pool of potential employees
who are interested in this type of employment opportunities.
Global sourcing has both benefits and risks. The benefits of sourcing for the employer include
lower labour costs, less government oversight and a larger pool of potential employees and
customers. For the employees, the benefits include a higher wage, improved working conditions
and learning transferable skills. The risks include higher costs due to cultural and language
related issues.
Diversifying business operations across different countries increases business travel and local
management issues.

Did u know? Most companies prefer to transfer knowledgeable staff to global locations for
senior management positions. In addition, they limit local management hiring to the
supervisory levels.
Logistics and transportation issues are critical to sourcing decisions. Any company considering
international suppliers must create an infrastructure of staging and storing locations in these
nations. Contracts with shipping and transportation companies add to the costs of global sourcing
for manufacturing plants.

Self Assessment

Fill in the blanks:
13. …………………… is the way in which companies select their suppliers, determine the
number they will work with, and define the type of contractual agreements that will exist.
14. …………………… sourcing is the internal business process used to manage the bidding
and vendor selector process.

15. …………………… costs vary internationally due to currency conversion and the cost of
living in different countries.

LOVELY PROFESSIONAL UNIVERSITY 253