How do you segment your global sourcing categories and why?

1 Benefits of global sourcing

Global sourcing can offer many advantages for your business, such as lower prices, higher quality, greater variety, increased competitiveness, and reduced dependency. By leveraging the lower labor, material, and overhead costs of some countries and regions, you can negotiate better terms and conditions with your suppliers. Additionally, you can access suppliers that have more expertise, technology, and innovation in your industry to benefit from their best practices and standards. Furthermore, you can find more options and alternatives for your products and services to customize them to suit your needs and preferences. This can help to enhance your market position, reputation, and customer satisfaction by offering better value, quality, and service. Moreover, diversifying your supply base and reducing reliance on a single supplier or region can mitigate the risks of supply disruptions, shortages, or price fluctuations.

2 Challenges of global sourcing

Global sourcing can be complex, as it involves managing suppliers, contracts, regulations, cultures, and languages across different time zones and distances. Additionally, you must assess and manage the potential risks of global sourcing, such as political instability or currency fluctuations. Moreover, there are hidden and indirect costs of global sourcing that need to be taken into account. Lastly, you must prepare for the uncertainty and volatility of the global market and be able to anticipate and respond to changes in demand, supply, prices, and regulations.

3 How to segment your global sourcing categories

To maximize the benefits of global sourcing and overcome any challenges, you should segment your products and services into categories based on their characteristics and risks. The Kraljic matrix is a common framework for this, which classifies your sourcing categories into four quadrants: Non-critical items, Leverage items, Bottleneck items, and Strategic items. Non-critical items are low-value and low-risk, and have many suppliers; global sourcing can be used to find the lowest prices and standardize specifications and contracts. Leverage items are high-value and low-risk, with many suppliers; global sourcing can be used to find the best quality and negotiate terms and conditions. Bottleneck items are low-value and high-risk, with few suppliers; global sourcing can be used to secure supply and reduce dependency on a single supplier or region. Strategic items are high-value and high-risk with few suppliers; global sourcing can be used to find the best partners and build long-term relationships.

4 Why segmenting your global sourcing categories is important

Segmenting your global sourcing categories is essential for optimizing your sourcing performance and results, managing risks and opportunities, improving efficiency and effectiveness, and enhancing flexibility and agility. This allows you to align your sourcing strategy with business objectives and priorities, as well as allocate resources and efforts accordingly. By segmenting your global sourcing categories and customizing your approach to each one, you can make the most of your global supply network and create value for your organization. Global sourcing is a powerful tool for purchasing that can help you reach your business goals and gain a competitive edge.