In today's globalised economy, sourcing from international suppliers has become increasingly popular for businesses seeking to reduce costs, access new markets, and gain a competitive advantage. However, sourcing from international suppliers also comes with its own set of challenges, like cultural differences, communication barriers, and logistics management. Indeed, 56% of retailers experienced moderate disruption from the pandemic according to RetailNext. Therefore, businesses need to adopt best practices when sourcing from international suppliers to maximise the benefits and minimise the risks. In this blog, we will discuss the best practices for sourcing from international suppliers, including identifying potential suppliers, building relationships, negotiating contracts, managing logistics, quality control, and assurance. By following these best practices, businesses can successfully navigate the complexities of international sourcing and achieve long-term success.
Best Practises for Sourcing from International Suppliers
1. Identify Potential Suppliers
According to ThomasNet, inefficient procurement costs businesses $1.5B every year. Identifying potential suppliers is the first step toward successful international sourcing. Finding the right supplier is crucial for a business to achieve its goals of reducing costs, accessing new markets, and gaining a competitive advantage. However, this can be a daunting task, especially for businesses that are new to international sourcing. Here are some steps you can take to identify the right ones:
Research Suppliers
The first step is to conduct research. This involves gathering information about the suppliers' products, services, capabilities, and reputation. There are several sources of information that businesses can use to research potential suppliers, including trade directories, industry associations, online directories, and social media platforms. This is easier than ever before thanks to technological advances in the supply chain. Trade directories are a great source of information for businesses looking to source from specific countries or regions. These directories typically list suppliers' contact details, products, and services and provide a brief overview of the company's capabilities. Industry associations can also provide valuable information about potential suppliers, as they often maintain a directory of members who specialise in certain industries or regions.
Online directories like Alibaba, Global Sources, and ThomasNet are also great sources of information for businesses looking to source from international suppliers. These directories provide detailed information about suppliers' products, services, certifications, and reviews from other buyers. You can also use social media platforms like LinkedIn and Facebook to research potential suppliers. These platforms allow businesses to connect with suppliers directly and gain insights into their capabilities, experience, and reputation. Even with so many options, approximately 32% of procurement teams admit to compromising their sourcing criteria for suppliers to ensure a stable supply (Source: Invalua).
Assess Supplier Capability
Once businesses have identified potential suppliers, the next step is to assess their capabilities. This involves evaluating their production capacity, quality control measures, and compliance with relevant standards and regulations. Consider factors like their production capacity, quality control measures, and compliance with relevant standards and regulations. Production capacity is an important factor to consider, as it will determine whether the supplier can meet the business's requirements in terms of quantity and lead time. Quality control measures are also important, as they ensure that the supplier's products meet the business's quality standards. Compliance with relevant standards and regulations is also important, as it ensures that the supplier is operating legally and ethically.
Conduct due diligence.
The final step in identifying potential suppliers is to conduct due diligence. The due diligence involves verifying the supplier's information and assessing their reliability, reputation, and financial stability. This is an important step to ensure that the supplier is a reliable and trustworthy partner. Consider the supplier's reputation, financial stability, and legal compliance. Reputation is an important factor to consider, as it will indicate the supplier's reliability and track record. Financial stability is also important, as it will determine whether the supplier has the financial resources to fulfil the business's orders. Legal compliance is also important, as it ensures that the supplier is operating legally and ethically.
2. Build Relationships with Suppliers.
Establishing strong relationships with suppliers is essential for businesses to ensure reliable and consistent supply, maintain product quality, and reduce costs. However, building relationships with international suppliers can be challenging due to cultural differences, communication barriers, and distance. Check out this blog to learn more about Supplier Relationships. Here are some tips on building relationships with suppliers.
Establish communication channels.
The first step in building relationships with international suppliers is to establish communication channels. Effective communication is essential to ensuring that both parties understand each other's expectations, requirements, and concerns. However, communication can be challenging due to language and cultural barriers. To overcome these barriers, consider using a combination of communication channels, including email, phone, video conferencing, and instant messaging. Also, ensure that they have a clear understanding of the supplier's preferred communication channels and time zones to avoid miscommunication and delays.
Develop mutual trust.
Trust is essential to ensure that the supplier is committed to delivering high-quality products and services, meeting the business's requirements, and resolving any issues that may arise. To develop mutual trust, businesses should be transparent about their expectations, requirements, and concerns. They should also demonstrate a commitment to building a long-term relationship with the supplier rather than treating it as a one-time transaction. Finally, businesses should be willing to invest time and resources in building a relationship with the supplier, like visiting their facilities or inviting them to visit the business's facilities.
Maintain regular contact.
Regular contact ensures that both parties stay informed about each other's activities, requirements, and concerns. It also provides an opportunity for businesses to provide feedback to the supplier and resolve any issues that may arise. To maintain regular contact, businesses should establish a regular communication schedule with the supplier. This can include weekly or monthly calls or emails to discuss ongoing projects or issues. Businesses should also consider visiting the supplier's facilities periodically to gain a better understanding of their capabilities and processes.
3. Negotiate Contracts with International Suppliers.
This can be a complex and challenging process, given the different legal systems, cultural differences, and language barriers. However, negotiating favourable contracts with international suppliers is essential for businesses to ensure reliable and consistent supply, protect their intellectual property, and mitigate risk. Here are some best practices in negotiations:
Understand the supplier's legal system
Different countries have different legal systems, and businesses must understand the legal framework and the regulatory requirements of the country in which the supplier is based. This includes understanding the legal requirements for contract formation, dispute resolution, and enforcement. Businesses should also seek legal advice from local lawyers or international law firms that have experience in the country in which the supplier is based. This can help businesses navigate the legal complexities and ensure that the contract is enforceable in the supplier's country.
Clarify Terms and Conditions
Another important aspect of negotiating contracts with international suppliers is to clarify the terms and conditions of the contract. This includes identifying the scope of the agreement, the quantity and quality of the goods or services to be provided, and the price and payment terms. Businesses should also be clear about the delivery terms, including the shipping method, delivery time, and customs requirements. Additionally, businesses should clarify the liability and indemnification provisions, including who will bear the risk of loss or damage to the goods during transit.
Protect intellectual property.
Intellectual property rights, like patents, trademarks, and copyrights, are critical assets for businesses, and protecting them is essential to maintaining a competitive advantage. To protect them, include specific provisions in the contract that outline the intellectual property rights of each party. For example, businesses may require the supplier to sign a non-disclosure agreement (NDA) to protect confidential information or acknowledge the business's ownership of any intellectual property created during the contract period.
4. Managing Logistics and Transportation
The ability to transport goods from the supplier to the buyer is crucial for businesses to ensure reliable and timely delivery.
Choose the right shipping method.
The most common shipping methods for international trade are air freight, sea freight, and land transport. Air freight is the fastest and most expensive shipping method, but it is ideal for transporting high-value, time-sensitive goods. Sea freight is a slower and cheaper shipping method, but it is ideal for transporting large quantities of goods that are not time-sensitive. Indeed, 90% of global merchandise is shipped by sea. Land transport, like trucking or rail, is typically used for short-distance transportation and can be more cost-effective than air or sea freight. Consider the characteristics of the goods being transported, the delivery time frame, and the cost when choosing a shipping method. It is also important to choose a reputable freight forwarder or logistics provider that has experience handling international shipments and can provide a comprehensive shipping solution.
Understand Customs Requirements
Customs requirements vary by country and can be complex, so businesses must ensure that they comply with all relevant regulations and documentation requirements. This includes obtaining the necessary import licences and permits, providing accurate descriptions and values of the goods being shipped, and ensuring that all required documentation, like commercial invoices and packing lists, is complete and accurate. Businesses should also be aware of any customs duties, taxes, and fees that may apply to the shipment. These costs can significantly impact the total cost of the shipment, so it is essential to factor them into the budget when negotiating with the supplier.
Manage Risk
International trade involves inherent risks like damage or loss of goods during transit, delays in delivery, and customs clearance issues. For example, in March 2021, a container ship blocked the Suez Canal for six days. It held up $9.6 billion in commerce each day that it was stuck. Businesses can mitigate these risks by purchasing insurance to cover the value of the goods during transit, ensuring that the freight forwarder or logistics provider has adequate liability insurance, and using reliable carriers with a track record of safe and timely delivery. Businesses should also have contingency plans in place in case of unexpected delays or issues with the shipment. This includes having a backup supplier or alternative shipping method, as well as clear communication with the supplier and logistics provider to resolve any issues quickly.
5. Quality Control and Assurance
Businesses must ensure that the goods they receive meet their quality standards and specifications to avoid product defects, recalls, and customer dissatisfaction.
Set quality standards
This is the first step in ensuring that the goods received from international suppliers meet the buyer's expectations. Quality standards should be clear, specific, and measurable and should cover all aspects of the product, including its appearance, functionality, and safety. Businesses should work with the supplier to establish quality standards that are achievable and realistic, taking into account the supplier's manufacturing capabilities and limitations. This includes setting specifications for materials, dimensions, weight, and other product features, as well as any regulatory requirements that must be met.
Conduct Inspections
Inspections can help identify any defects or issues with the goods before they are shipped, allowing for corrective action to be taken. There are several types of inspections that businesses can conduct, including pre-production inspections, during-production inspections, and pre-shipment inspections. Pre-production inspections are conducted before production begins to ensure that the supplier has the necessary materials, equipment, and processes in place to meet the quality standards. During-production inspections are conducted during the manufacturing process to ensure that the goods are being produced according to the quality standards and specifications. Pre-shipment inspections are conducted before the goods are shipped to ensure that they meet the quality standards and specifications and are in good condition for transport (Source: Asia Quality Focus).
Establish a quality control process.
This ensures consistent quality and minimises the risk of product defects and recalls. According to ETQ, 96% of organisations report having a product recall over the last 5 years. A quality control process includes a set of procedures and protocols that govern the inspection, testing, and acceptance of goods received from international suppliers. The quality control process should include clear guidelines for setting quality standards, conducting inspections, and approving or rejecting goods based on the results of the inspections. It should also include procedures for documenting and reporting any defects or issues with the goods and for working with the supplier to address any quality issues that arise. To establish an effective quality control process, businesses should work with the supplier to understand their manufacturing processes and capabilities, as well as their quality control procedures. This can help identify potential areas of concern and establish clear communication and expectations between the buyer and the supplier.
Conclusion
Sourcing from international suppliers can be a great way to access new markets and expand your product offerings, but it comes with its own set of challenges. Quality control and assurance are critical aspects of the sourcing process, and by following best practices like setting clear quality standards, conducting inspections, and establishing a quality control process, businesses can ensure that the goods they receive meet their expectations and specifications. With a proactive approach to quality control and assurance, businesses can build a strong and reliable supply chain that delivers high-quality goods to their customers and minimises the risk of product defects and recalls.
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