Introduction
Global sourcing is increasingly becoming the buzzword in the corporate world. In a world where globalization is clearly on the increase, global sourcing offers significant cost savings, making companies more competitive. Global sourcing essentially means sourcing material from wherever it is most cost-effective. However, global sourcing also involves interactions with people from different cultures, with different values, languages and time zones and requires a concentrated integration effort at the top level in order to be successful. The present case is of a big box retailer which sources and sells worldwide. However, the company’s operations are highly uncoordinated, which means that it has not properly integrated its international sourcing system into the company’s culture. If one is to acquire this firm, I will need to carry out a major revamp of its systems in order to make the company more efficient and productive.
The Problem
Before I try to solve the problem, I need to understand what the problem is. It seems the company jumped the international sourcing bandwagon without carrying out the necessary research or preparing itself for the resulting integration requirements. The company seems to be facing several integration-related issues. I am now going to discuss each of these issues one by one.
Cultural Differences: This is the most obvious problem facing the company since the relation between people from different lands is not productive. When a company goes global, its employees often come in contact with a different culture for the first time. Not everyone has the same value system as Americans do and this can lead to a number of conflicts with the American bosses taking certain things for granted while employees from other countries not understanding these requirements. To avoid such conflicts, it is necessary to bring all the employees on the same page. Although cultural differences are important, as Pressey & Selassie (2003) have pointed out, this problem may be overrated and not the real reason behind the retailers’ problems.
Lack of a well defined global sourcing process
When a company starts sourcing globally, it needs to establish a system to ensure proper processes in the entire supply chain. Although, this may be considered best practice even for company’s sourcing domestically, this becomes all the more important in international sourcing, not only because of cultural problems but also because of legal issues arising out of cross-border transfer of goods.
Lack of proper communication systems
This is extremely important in global sourcing since the suppliers are situated around the world making real-time face-to-face communication difficult. Communication becomes even more complicated because participants often speak different languages and have different cultures. Problems with communication can be extremely frustrating if not addressed properly.
Need for knowledge sharing among the participants
Many companies may be reluctant to share their proprietary knowledge with the suppliers in the fear of developing competition. However, knowledge sharing builds trust and the various participants can get mutual benefits from such knowledge sharing. The Toyota (Dyer & Nobeoka, 2000) case tells us how knowledge sharing can be productive for all participants.
The above-mentioned problems are by no means an exhaustive list of all the problems ailing the firm but will suffice for the present paper.
The Solution
As Trent and Monczka (2002) have mentioned, global sourcing is different from international buying and involves complex processes to ensure integration and coordination of all the functional groups. Since the retailing company in question is involved in global sourcing, it needs to streamline its processes to ensure better integration of all the participants. This can be done by adopting the following measures.
Create a well-defined global sourcing process
As suggested by Trent and Monczka (2002), this can be done by developing a dedicated team, with a full-time manager, to oversee the global projects. The team needs to study the various processes and come up with a well-defined procurement process that can be successfully applied to worldwide sourcing opportunities. Such a process helps align the vastly different participants and processes around the globe. This is a long drawn process and can take anywhere from several months to several years. This process also includes searching for new suppliers and integrating them into the company’s processes. As General Electric medical Systems’ (GE case) experiences with global sourcing show, integration of suppliers does not take place overnight but must be pursued as a long-term strategy. This essentially means that overhauling the retail chain’s supply system will take time and I will need to be patient.
Develop well-established communication
As stated above, communication becomes extremely important when dealing with international suppliers. As suggested by Trent and Monczka (2002), this can be done through several measures. First, whenever possible, the various participants should meet face-to-face at least once so that they know who they will be dealing with. Co-ordination can be maintained in future through audio and video conferencing and when required, the participants can meet again to iron out any issues which may arise from time to time. It is also important to keep the various participants updated through weekly progress reports. Finally, the firm can also appoint an analyst to coordinate the various processes and information. Once a proper communication system is in process, it will become easier for the company to improve its relations with the suppliers.
Share knowledge with the suppliers
The key to building global relations is to build trust. One way to do this is to share acquired knowledge with the suppliers and in turn learn from their experience. This can be difficult because companies are often reluctant to share proprietary information which may be acquired by a competitor. This problem seems to have been successfully solved by Toyota (Dyer & Nobeoka, 2000). Toyota has established a knowledge-sharing network of all its suppliers which allows the company to reduce costs associated with finding and accessing different types of valuable knowledge. A problem with such a network is that of free-riders, or people who access information but do not give back anything in return. Toyota has successfully overcome this problem by making it mandatory for all participants to share knowledge and the violators are punished in that Toyota has the right to cancel their contracts. Thus, by leveraging its position as a major client, Toyota is not only able to access knowledge at low costs, it also helps build trust among the suppliers. Knowledge sharing has another advantage in that firms can learn from each other’s past experiences. As Emden et al (2005) point out, such learning from past experience “is an efficient way to alleviate coordination challenges”. Since the retail company is facing major coordination challenges, knowledge sharing becomes all the more important.
Provide access to all information and data
This might seem like a no-brainer since no supply chain can work without access to reliable and timely information and data. However, Trent and Monczka (2002) point out, many firms lack the necessary IT capabilities to make this information available. Hence, in order to make the sourcing process smooth, the retail firm would need to implement proper IT systems which could make all the data available in a timely and reliable manner.
Involve users in the process
No process, no matter how carefully planned, can be successful if the users or the people who will be using the process are not comfortable with it. Based on his experiences with implementing new technology in Mexico, Plenert (1990) advises that the managers should always listen to the users who have to actually use the system. Trent and Monczka (2002) also have a similar viewpoint. Since the suppliers have to live with the system, there is no point in designing a system with which the suppliers are not comfortable. So the suppliers must be involved in the formulating of the global sourcing process from the very beginning. Since the retail firm does not have any global sourcing firm in place, when the company decides to develop such a strategy, it would need to ensure that all the suppliers are included in the planning process.
Conclusion
The big-box retail firm in question seems to be in a mess because it does not have global sourcing process in place. If someone is planning to acquire this firm, they will have to go in with long-term commitment and implement a well-planned sourcing process. There is no overnight solution to this problem and the acquiring firm will need to invest substantial time and money to turn around the retail firm’s poor coordination in global sourcing processes.
References
Dyer, J.H. & Nobeoka, K. (2000). “Creating and managing a high-performance knowledge-sharing network: The Toyota case”, Strategic Management Journal, 21, 345-367.
Emden, Z., Yaprak, A. & Cavusgil, S.T. (2005). “Learning from experience in international alliances: antecedents and firm performance implications”, Journal of Business Research, 58. 883-892.
General Electric Medical Systems, 2002. in Developing Strategic Capabilities: Building Layers of Competitive Advantage. 266-287.
Plenert, G. (1990). “Developing a production system in Mexico”. Interfaces, 20(3), 14-23.
Pressey, A.D. & Selassie, H.G. (2003). “Are cultural differences overrated? Examining the influence of national culture on international buyer-seller relationships”. Journal of Consumer Behavior. 2(4). 354.
Trent, R.J. & Monczka, R.M. (2002). “Pursuing competitive advantage through integrated global sourcing”, Academy of Management Executive, 16(2). 66-80.