Research Paper on Global Sourcing: Cost Effective Procurement Strategy

Introduction

Global sourcing can be described as the procurement strategy that the company or a business organization seeks to find out the most cost effective way of getting or finding a practical location for the manufacturing of one or more of the company's products (Kildow, 2011). The company will go ahead to seek goods and services beyond the borders of the country provided they are cost effective. In most cases, the company would prefer the global sourcing strategy when the prices of obtaining the same units of the products are lower abroad than to manufacture them and source them from the local market. The company will take into consideration both the raw material costs and the labor costs of producing the same units of the products locally and from the global market.

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The purchasing and the procurement professionals suggest that companies should be in a position to source for their products from within the country and outside their national borders considering the prices that would enable them to compete effectively and maximize the profits (Muller, 2019). The global sourcing will not only involve searching for cheap products outsides the country borders, but it will also take into consideration different efforts to improve given aspects of manufacturing.

The various elements of production that must be considered in global sourcing include supplier selection and performance, the speed market, which is the ability of the products to be sold, and how faster they are moving from the stock (Kildow, 2011). The company should also consider the trade compliance within and outside the borders of the country and the auditing, which will also involve the costs of the estimated products.

From the pros and cons of global sourcing, the main aim of the manufacturer or the trading company should be lower costs and higher quality of the products which cannot be obtained locally within the borders of the country. The prices and the risks involved during the logistics on the global sourcing must be covered when determining the costs of obtaining the goods from the outside the country and the different parties must include this involved following the agreement terms.

The dynamics of operations that exist in the different countries globally have resulted in various logistics standards being unified and other related issues which are involved in the intercountry trade operations. On the global trade system and services, some regions posses higher risks and the overhead costs due to the strict infrastructure rules and regulations. For the countries to harmonize logistics operations in the global trade operations there are several codes and terms which have been enacted by different countries.

Forecasting Process in Sourcing and Procurement

In the procurement process, we can consider forecasting as one of the significant input which must be found and be given attention. Prediction can be described as a look ahead into the demand of the product based on the historical data and is being used to estimate the amount which is required in the future (Kildow, 2011). The analysis, which is obtained based on the demand statement, is being used to make the necessary recommendation for the procurement process. There are four forecasting methods that can be used in the procurement methods. These methods include the qualitative forecasting method, which is always based on personal insight. The second forecasting methodology is causal, which assumes that given specific variables will still drive the forecast, the best example is the interest rate increased by the Federal Reserve, which will result in to decrease in the loan activities by the trade bodies. Another example of causal is when a customer is opening new stores, which will probably increase the company sales to that specific customer.

The third methodology of forecasting is the time series whereby the team charged with the forecasting analysis will assume that the historical data obtained will predict the future trends in the market a good example is where a company will predict the sales of each month based on the purchases which were made on the same month the previous year. This will enable them to predict the procurement which they can prepare for the maximum productions. The fourth forecast methodology is a simulation which always combines the causal and the time series methods to increase the efficiency and try out different scenarios.

There are several factors that must be taken into consideration when doing the forecasting and planning for the future by the company. These factors include the impact of technology, whereby the company will always try to predict the development and innovations which are likely to come up in the same field after a given period (Loppacher, Luchi, Cagliano & Spina, 2006). Social issues are another factor that must be considered, which must be considered when doing the planning and forecasting, this is how the development of the products produce will affect the society and the family in the predicted future. Before deciding on making global sourcing, it is crucial to determine and be aware of the political and bilateral relations between the mother country and the country to outsource the products.

The issues to be noted on the political factor are whether the government offers subsidies for the importation and development of a given product, which will give room for profit maximization. The company should also consider the legal issues from global sourcing and discuss the legal requirement needed to trade and outsource the products from different countries. Lastly, the company should consider environmental issues which would affect the efficiency of trade between different countries. The ecological issues should be put into consideration during the forecasting process for the procurement; this will ensure that the business surrounding and the clients are protected from inferior products and any form of pollution of the environment.

The importance of forecasting in the procurement is a very pivot point, and the companies must have a centralized structure in the system that will assist in capturing of data and accuracy. Without accurate data, all the forecasting will not be reliable, and the whole process of procurement and outsourcing will be faulted; this will result in the company making losses in the long run, or the company will not compete effectively in the market (Muller, 2019). Every business organization should concentrate on forecast optimization. There are several steps or actions that the business organization must take to properly optimize the process of forecasting. The organizations must ensure that there is collaboration with the internal departments and all partners who exist outside the company. This will also ensure that there is a flow of information in time from one department or from one partner to another. The customers and clients should be well integrated into the process of forecasting.

The company should ensure that there are accountability and integrity during the process of forecasting, and all parties who are involved should have one primary goal to achieve this will ensure that the same efforts are employed by every party, which is playing a role in forecasting. The prediction and forecast process should be given a chance of being wrong and allow for adjustment; this because no method or individual can predict the future all right. The company should always work on the constant edge to improve the process and limit the error.

The companies are encouraged to use the scientific approaches which are basing their findings on facts and data collected as it will assist in avoiding speculation and reducing the error in the process. All the departments in the business organization have the responsibility of forecasting its business for the predicted period to allow for the overall and general performance of the company. Application of technology in the forecasting process ensures that a lot of data is collected and there is maximum accuracy.

Level of Forecasting Process in a Company

A well-organized forecasting process I one of the significant achievements of a company. The company or organization should be aware of all the products that the clients want. It is a fact that world trading is changing from local to the global supply and the demand change with different taste and preferences. The company should not only forecast the local customers but also pay attention to the internal or the global market. So there is a need for the company to concentrate on the international forecasting process. The different levels of forecasting are the organizational forecasting level and the international forecasting level.

There are several factors that are affecting organizational forecasting accuracy. These factors include the sales and marketing process, which is involved in the organization. The software design, which is used by the organization, can also affect the forecasting process. The forecasting team structure and the available data for input are also some of the significant factors that must be put under consideration during the process (Muller, 2019). The company would prefer the use of different approaches like the top-down approach, which a common and straightforward approach to be used during the forecasting process. This approach is simple in that the company will forecast the aggregate level using simple and essential input like the companies' historical data and the effect which is being brought by the product promotion. The top-down approach is suitable for the forecasting on the predictable sales trend.

The bottom-up approach tends to be more involved, this is due to a large number of data and forecast procedures involve; hence most companies would not always apply the process. The second level of the forecasting process is the international level; most of the factors affecting the organizational forecasting will apply in the global prediction. The only difference is that the cultural differences amongst the regions will put into considerations.

Inventory Forecasting During the Procurement Process

The inventory forecasting is the process of predicting or calculating the need or necessity that the company requires to fulfill the customer's demand on the quantity and the quality of goods and services offered. The estimates will be from the historical sales data and even put into consideration the promotions and the external forces that would have possibilities of affecting future sales (Muller, 2019). All the organizations and business companies keep the inventory; the data will have precise information on the company's raw materials, the work which is a process, and the supplies which are being used in the operations and the data about the finished to be dispatched.

There are several costs that come with the inventory. The expenses like for space will have to be considered, the prices of labor for receiving goods, check the quality, pack goods, and account for the item will also come with the inventory. The possible costs which will come from deterioration, damage and any obsolescence will also be considered with the catalog. It is important to note that all the inventory costs will fall under the ordering costs and hold values.

The Importance and Purpose of the Inventory

There is a number of reasons why a company would prefer obtaining and holding stock, and these include the predictability of the process. For companies to engage appropriately in capacity planning and production scheduling, there is a need to control how much raw materials are required and how much goods can be processed at a given time. The inventory will show what is needed and from which process (Loppacher et al., 2006). Another importance of stock is the fluctuatio...