The global marketplace is expanding. Now, more companies are sourcing products from overseas for different reasons, including competitive prices, low production costs, and proximity to customers in specific markets. However, with great opportunity comes tremendous risk. So whether you’re a fledgling entrepreneur or an established CEO looking to enter a new market, it is always a nice idea to comprehend where the obstacles lie before you run into a disruptive one.
In this article, we will discuss five mistakes that business owners should avoid when sourcing overseas. To run a business successfully, it’s necessary to develop and continuously optimize a supply chain that satisfies your customers. If this is not prioritized, your business will suffer. As part of this optimization, it is necessary to understand customers, governments, countries, etc., when sourcing globally.
5 Mistakes to Avoid in Global Sourcing
Mistake 1: Inadequately defining strategy
No matter where you are sourcing from, you need a clear strategy. Without it, your business will be in turmoil. For example, if you enter a foreign country without a plan, you may end up selling very little because the cost is too high or the product is wrong. This will sink your business before you even set sail.
When sourcing globally, develop a comprehensive strategy that takes into account the following strategies
- Identify suppliers
- Identify your suppliers
- Identify and validate your suppliers
- Review quality control processes and evaluation criteria
- Review sourcing methods
Mistake 2: Unclear standards
What are your company’s standards for products and materials? Before hiring a procurement consulting firm, make sure you know the answer to this question. This is the standard by which you will measure the supplier’s products before purchasing their stock.
Have a look at short checklist that you should read when choosing a supplier
Location– Does the supplier’s place in a particular region/country/region matter? Does the location have a significant impact on price, delivery time, etc.?
Production Capacity: How will the selected supplier manage production capacity on a weekly, monthly, quarterly, and annual basis? Will you need to modify your supply chain or add new suppliers to accommodate potential growth? How much will it cost to use multiple suppliers or find an enormous supplier in the same region?
Quality – What are your expectations of the supplier’s quality? What are the supplier’s quality standards? Do you have to compromise quality to use your chosen supplier? How consistent is the supplier’s production quality?
Price: What’s the selling price of your product? Is the chosen supplier in an acceptable price range? Are there other suppliers with better prices?
Technology: What is the technology level of the supplier? Do you have to compromise data to use the supplier? Are they willing to upgrade their technology to meet your needs?
Communication: How good are the vendor’s communication skills? How transparent are you about the supplier’s processes and systems? Can you communicate honestly with the vendor?
Mistake 3 – Inadequate Research
When sourcing from overseas, you need to do your due diligence to determine if the supplier is worth the investment. Part of your business depends on that supplier as a link in your supply chain. You do not want to incur costs due to a rogue or ill-equipped system.
Have a look at some general tips to help you research potential suppliers.
- Check online reviews.
- Look at reviews of other suppliers.
- Visit the supplier’s website and check
- Check registrations, certifications, and licenses
- Ask for a copy of the license
- Check vendor’s local registration
- Check with the local AIC office for information
- Visit the vendor (preferably multiple times)
- Hire a procurement service provider
Mistake 4 – Lack of Security & Payment Protection
Before you start making payments to an overseas supplier, you need to make sure that you are protected and get your money back if there is a problem with the quality of the product. Unfortunately, many companies rush into a relationship with a supplier and start buying their products, only to find out later that the quality is substandard. In such cases, the lack of payment protection causes losses to the company.
Find out how to protect your payments and ensure quality control.
- Choosing a secure payment method
- Establish and verify a clear definition of quality before purchasing goods.
- Buy samples first.
- Sourcing from multiple suppliers
Mistake 5 – Failing to Sign a Contract
It is good to think that “a company’s word is its bond,” but this is not the case in most cases. A deal without a contractual commitment carries a great deal of risk. A written contract cannot prevent a supplier from acting outside the contract, but it can give the business owner a legal advantage if something goes wrong. Without a warranty, there is little to no consequence if a supplier stops delivering.
The basic information needed for a vendor supply contract is as follows.
- Who is involved?
- Terms and conditions regarding samples, pricing, quality, logistics, management, etc.
- Product definitions regarding quality, type, and delivery
- Payment agreement
- Liability in case of breach of contract
- Choice of applicable law
- Dispute resolution clause
- Arbitration clause
- Legal fees
To protect your company and your esteemed clients, always consult with a professional procurement company in the USA when drafting a contract.