**London**: This article explores the complexities faced by companies, especially SMEs, when engaging overseas suppliers. It highlights the critical need for relationship management, governance, contracts, and supplier qualification to ensure successful outsourced sourcing and maintain product quality internationally.
Engaging suppliers located overseas presents a range of challenges that even experienced sourcing professionals find complex. A recent analysis by Supply Chain Game Changer » Procurement highlights the advantages and critical considerations of outsourcing sourcing functions for companies, particularly small and mid-sized enterprises aiming to manufacture products internationally.
The article opens with an illustrative scenario: a product inventor with a clear marketing plan and cost target determined that overseas manufacturing would be necessary but was unsure how to begin sourcing his product. Larger corporations typically employ strategic sourcing procurement teams distributed globally, with the infrastructure, systems, and relationships essential to manage such operations. In contrast, smaller organisations often lack the resources to build such extensive internal capabilities.
Directly interacting with overseas suppliers is described as a multifaceted undertaking that goes far beyond simply finding a supplier online. Numerous processes, controls, and conditions must be managed to ensure product quality and production consistency, and it is acknowledged that these interactions rarely run perfectly smoothly. The article suggests that companies consider partnering with outsourcing agencies or sourcing partners experienced in on-the-ground support to oversee the manufacturing, distribution, and shipment of goods. Many larger companies themselves rely on external sourcing partners for parts of their sourcing needs.
However, outsourcing sourcing does not absolve companies of responsibility. Experience and management expertise remain necessary on the client side to maintain control and ensure desired outcomes. The article stresses several key elements essential to managing outsourced sourcing relationships:
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Relationship Development: Periodic face-to-face meetings with the sourcing partner are necessary to maintain focus and commitment, as virtual communication alone may not suffice. Recognising and navigating cultural differences between sourcing agents and suppliers is also critical. Both parties should designate a key relationship owner to streamline communications and resolve issues efficiently.
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Code of Conduct: Since sourcing agencies select and qualify suppliers, companies must establish a comprehensive Code of Conduct. This should include compliance with laws and regulations, prohibition of underage labour, appropriate working conditions, fair wages, and benefits. Ultimately, the company remains responsible for conditions under which their products are manufactured.
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Governance and Communication: Structured oversight mechanisms need to be in place to regularly review performance metrics, production schedules, resource use, audit results, and action plans. Setting clear targets ensures alignment and accountability among all involved parties.
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Formal Contracts: Clear contracts between the company and the sourcing agent, as well as with suppliers, are critical. These agreements must explicitly clarify ownership of tools, machinery, processes, materials, and intellectual property. Provisions should prevent suppliers from refusing to return tooling or from misappropriating intellectual property if the business relationship changes. Transparency about potential conflicts of interest, such as sourcing agents receiving commissions from suppliers, is also necessary.
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Supplier Selection and Qualification: Whenever possible, potential suppliers should be visited alongside the sourcing agent before selection. The article warns against superficial visits, noting suppliers often prepare carefully for inspections. Surprise visits may provide a more accurate view of everyday operations. It is vital to confirm a supplier’s ability to meet fluctuating demand and agree on cost, delivery, and quality implications upfront. Rigorous qualification processes, including establishing “golden samples” of products, are recommended to resolve quality disputes.
The article concludes that most companies, regardless of size, will encounter the necessity to work with suppliers located in different countries or continents. For those lacking strategic sourcing capabilities, engaging sourcing agents becomes a practical solution. Nonetheless, companies must maintain direct oversight and implement the discussed governance measures to mitigate risks.
In-house procurement teams play a proactive role in managing outsourced sourcing partners, ensuring that challenges are addressed swiftly to safeguard the business. The article encapsulates its advice with the phrase: “Think about Outsourcing Sourcing!” underscoring the growing relevance of such approaches in contemporary global supply chains.
Source: Noah Wire Services
