Global sourcing Essay

1) What is spherical sourcing?Global sourcing is defined as the adjoin of identifying, developing, and utilizing the line of descent of tot up for the enterprise through expanding purchasing activities internationally. It is a part of locating reengineering activities which is an useful measure of cutting cost. Global sourcing is a typical lawsuit of outside crook outsourcing firms which form construction by distri only whening each process of construction work to vendors alternatively of running on its own. such construction method not only does load be in toll of managing construction sites very much(prenominal) as grind cost and equipment cost including vehicles, but withal is being adopted by various companies for value-adding construction anxiety (CM) project. For instance, global sourcing was utilized when building Daewoo Business Center at Warszawa, Poland, on March, 1997. The process of erecting the center was alloted to vendors construction was executed by VOICE(England), institution through RTKL(U.S.), facility worry was duty of Dongwoo which is a department of Daewoo Group, hotel behavement by Hilton hotel(U.S.).2) Global sourcing factorsGlobal sourcing factors that must be understood and equilibrate toilet be segmented into 5 categories. First factor is textile cost. The bottom line of execution of global sourcing is reduce cost by minimizing material cost. some other category is transportation cost. Various costs including neckcloth delivery cost evoke be dwindled through global sourcing. Moreover, pregnant amount of transportation expense can be reduced when trade products at outsourcing regions. Cross-border taxes, tariffs, and duty costs argon third factor which leap global sourcing. Instead of relying on domestic yield but sort of outsource each process internationally, costs can be reduce by avoiding trade barriers which include cross-border tax, tariff and duty cost.Next factor is preparation and operationa l performance. With effective resource management and cheap sedulousness cost, make out and operational performance can be efficiently managed which en fitteds global sourcing companies to manufacture noble flavour-low expenditure merchandises. The last category of global sourcing is total and operational risks. Cultural and geographicaldisparities can yield superfluous costs much(prenominal) as labor cost and transportation cost. If not managed thoroughly, they can militate as huge risks in footing of conducting sourcing.3) Advantages of global sourcing at that place are three major merits of performing global sourcing gumption to changes, lessening of cost, and trade barriers avoidance. To begin with, global sourcing allows a firm to develop capacitance to cope with changes in market configuration. Importing numerous rude materials and resources economically and steadily can be done through global sourcing. With such(prenominal) abundant resources, a firm can flexibly adopt to environmental alterations when confronting unexpected economic crisis. Secondly, average 20% of cost saving is possible. Components of products or raw materials procured from abroad is advantageous in terms of cost. Furthermore, many countries such as American and Europe are sourcing materials to cut cost in terms of distribution industries.As a result, China has become the hub of production brutish for global sourcing. Even in reason of Korea, sourcing products from China are 30%40% cheaper than Korean domestic goods. In particular, simple available merchandizes whose design and quality are relatively less considered are generally influenced by global sourcing. Consequently, over 70% of commodities and clothes are merchandise from China. Last merit of global sourcing is evasion of trade barriers. In case of global sourced goods, the price is lower, unfolding to economical purchase, by avoiding trade barriers such tariffs and cross-border taxes. On top of that, firm s are able to acquire restricted raw materials and resource. Thus, unique and competitive products can be created.2. Case-Study (Li& adenosine monophosphateFung)1) IntroductionLi& deoxyadenosine monophosphateFung is a professional trading company which specializes in global sourcing and was founded in 1906. It functioned as a broker between Asian manufacturers and foreign traders and expanded as a trading company later on. Today, Li& angstrom unit of measurementFung acts as a professional sourcing and distribution firm concentrate on toys and textile. Becoming an intermediary, it reconstructed the personal credit line by forming it as a connection and manager of diverse supply orbits. Li& vitamin AFung is the vocalisation of smokeless factory without owning any equipment and factories regarding production process from raw material to final goods and distribution of final products.2) Business area / Present conditionLi& angstrom unitFung won the rewards in Fabulous 50 selectied b y Forbes Asia, 50 for 2012 from Morgan Stanley, and The near influential companies 25 from Business week. The sales of Li& adenineFung in 2007 was 92.4 billion in Hong Kong dollars, approximately 36% augment in sales compared to that of 2006.Net income reached 30 billion dollars(2007) and Li&Fung Co. Ltd. succeed in gaining 19.8% increase in sales (110.7 billion Hongkong dollars)than that of forward year. After 1998, foreign companies such as The Limited, Gymboree, American Eagle, Warner Brothers, Abercrombie & Fitch, Bed, lav& Beyond, Tesco, Avon Products, Levi-Strauss, Reebok have become major customers of Li&Fung, and kinglike Ahold, Guess Jeans, Bebe also joined as major customers of Li&Fung in 2000. As a result, Li&Fung currently has 68 offices in the 38 countries, and shareholders numbers 17,900. In addition, it consists of 107,000 employees engaged in the business associated with Li&Fung, especially 40,000 related businesses only in the join States. Thus, it can be said that Li&Fung has entered plateau introduce as a company settling impertinently form of SCM or else than just being a simple trading firm.3) Platform / movement SystemLi&Fung is one of the enterprises which effectively employ platform strategy. In terms of strategy, Li&Fung adequately balances SRM and CRM strategy to manage producers and customers. Li&Fung distributes textile component orders to vendors as soon as receiving orders from textile industries. It makes about of 15,000 subcontractors which are located around the globe. When producing a jacket, for example, Li&Fung procures materials from diverse vendors outshell is from Korea, Zipper from Japan, lining is done from Thailand, and trademarks and thread from Hongkong. cloth is dyed in Southern Asia, China sews, and finally quality critique and packaging are done in Hongkong. Then, headquarter in Hongkong generally manages money flow and value-added process.4) Success FactorsSucces s factors of Li&Fung can be categorized into three sections. The first factor is IT evolution. Through IT development, product lead time dwindled through forming vane among producers and customers, and even efficiently manage vendors. Another facet is SRM and CRM, especially have strength on SRM. Li&Fung analyze customers needs and scrutinize supply chain to meet the desires. Since firms tend to focus on maximizing their capability instead of in accordance with needs, Li&Fung can otherwise attain to fortify supply chain or value chain for customers.In other words, the key role of Li&Fung is to direct manufacturers of supply chain to the intended direction. For that specific purpose, it establishes education to producers on scattered network management rather than having strict control system for managing vendors, and emphasizes on put and active empowerment. Lastly, Li&Fung follows 30/70 rule, which is to set a standard(from 30% to 70% of total production) on produ ction quota to Li&Fung.This enables Li&Fung to have loose liaison among subcontractors. Minimum 30% of total production allows Li&Fung to possess minimum supply from each subcontractors and prevention vendors from being subordinates can be done by setting maximum 70%. The core objective of this principle is to check out vendors of gaining huge profit from being a member of the network and on the other hand guaranteeing flexibility of business and availability of a elbow room for growth. Other vendors also benefit from the principle by being thwart to opportunities to work with others, which help them to learn and come up with innovative ideas. Such principle demonstrates value of Li&Fung on making supply chain more dynamic and lively. Thus, change in partners frequently happens in supply chain of Li&Fung. In conclusion, Li&Fung shows contradictory management of pursuing stable and long-term partnership whereas also demanding loose network instead to forming stri ct organization.3. Problem & dissolver1) Wage stagnation / Pricing pressureThe first trouble of Li&Fung is wage stagnation of China. China accounts for 60% of total global sourcing of Li&Fung, which substance that shift in China touch on Li&Fung heavily. After the economic liberalization of China, China has been able to attract world companies as the most suitable production base due to cheap and abundant labor. As a consequence of certain growth, Chinas wage has been increasing 16% annually. As labor cost takes up the largest portion of garment industrys costs, Li & Fungs first half of 2011 net income dwindled 18%. Therefore, at that place is high necessity for finding a new production base(a new partners) and gain price competitiveness through such measure. Second problem is overseas buyers desire to lower supply pricing due to high uncertainty from global recession. As shown in the average import price of textile in the U.S. graph on the right, the average im port price has been continually decreasing, from $3.18 in 2006 to $3 in 2009. Heavy pressure on supply pricing is having negative impact on net income of Li&Fung.2) China & U.S Trade combatThird mishap is potential trade disputes between the United States and China. This trade conflict, which is referred to as protectionism, is worthy of a notice as 69% of total production of Li&Fung is sold to the United States. The United States has criticized China on the bills exchange rate manipulation, along with accusation of exchange dumping. In addition, theatrical role 421 is an article which can be executed in a concomitant where increased import of Chinese products acts as a severe aggrieve to American domestic industries. Accordingly, it is inevitable to exclude potential trade conflict between two countries on account of high possibility of implementing additional countervailing duty by executing section 421.3) Expanding partners in Southern AsiaIn preparation for deter ioration of Chinas production environment and falling competitiveness of China as a sourcing region, Southern Asia is evaluated as the most practical alternative for strategic sourcing of Li&Fung. In terms of percentage change in world textile industry sourcing, step-down of China is noticeable, as 7%, whereas Vietnam and Bangladesh show growth, respectively displaying 1% and 20% of sourcing uprising rate.To demonstrate suitability of sourcing to Banladesh, environment of Bangladesh such as societal infrastructure and facilities, and educational level should be thoroughly examined. Nevertheless, wage of Bangladesh is much cheaper than that of China, Bangladesh being one third that of China, in terms of only considering unit labor cost. Furthermore, Bangladesh is likely to be significantly equipped with garment-industry infrastructure resolve from the large number of textile industries sourcing to Bangladesh. Therefore, it is no hasty conclusion that Bangladesh is the most app ropriate region for new production base of Li&Fung.4) Quality management systemControlling over 15,000 vendors is demanding and the possible drawback is mischance of consistency in quality. Since quality is prerequisite these days, stricter vendors quality management system should be made. One of the tools that Li&Fung can utilize and apply stricter is Vendor compliance index. There are six indexes Li&Fung should keep attention to efficient operation, productivity, process innovation, ensuring the quality, purchase the appropriate law material, and good working condition of labor. By balancing and fulfilling following vendor compliance indexes, Li&Fung entrust be able to afford products to customer with coherent quality. 4. ConclusionThe design having used by Li&Fung is highly familiar to us as global sourcing is also deployed by domestic companies such as Samsung and LG. Global sourcing can be divided into two factors risk element and opportunity element. These t wo elements are in trade-off relation which means that change in one element accompanies the other, while endeavoring to maximize opportunity element. Thus, taking advantage of opportunity and risk element in a timely manner is the premise for successful global sourcing and in-depth analysis on local region and strategy should be followed when implementing global sourcing.