Ways To Minimize Risks When Sourcing Materials

Ways To Minimize Risks When Sourcing Materials

Product sourcing is a strategy that is used worldwide by many business owners. It helps them in sustaining competitiveness and maintaining profit margins. However, it is essential that businesses balance low-cost sourcing with their own quality requirements and take care of the risks and cost analyses, including planning, implementation, and transition costs. So if businesses want to gain a competitive advantage by lowering costs, it is crucial to ensure that there are no hidden costs that can eliminate the cost advantages they seek. So even if you hire the top China sourcing company, you need to know about the following strategies that will help you to minimize the risks of sourcing.


Managing Product Quality

Failure in the quality of products from an international source can significantly negatively affect any business. These implications will be much more severe than from a domestic source due to the lead times involving different time zones and longer distances, which thus take several months to rectify the problem. Quality failure can also affect the downstream supply chains, leading to increased customer returns, hence growing reverse supply chain costs. All of these factors ultimately impact the bottom line of the business.  

So the main goal of the businesses should be to build an efficient supply chain with proper quality product management, which can be done by preparing and agreeing on detailed product specifications with the top China sourcing company like labeling, packaging, and raw materials; diligent supplier pre-qualification; an agreement to contact incentives and penalties for quality performance; balancing the focus on price competitiveness and quality requirements; using external quality control inspections and audits; sourcing from both global and domestic suppliers; working on relationships with suppliers of good quality products.

Observe The Logistics Process

Moving goods across borders is a complex process. Poor decisions when managing logistics can lead to many issues. Even though the transport costs have been factored into your feasibility research, there are many other aspects to consider, such as theft or loss in transit, piracy, deterioration or damage, increased lead times, communication delays due to the difference in time zones, complex documentation requirements that require consulting or research, import restrictions, licenses, permits, standards, quotas, regulations, formal international purchase agreements, and special packaging.

The logistics risk can be minimized by demand forecasting, including extended lead times; transport planning, including security or customs issues, work schedules, and delivery time frames; contingency planning to ensure that plans are in place in case any potential problems occur like alternative local suppliers, additional travel routes in order to avoid potential disaster areas, or accidents; customs brokers and services of freight forwarders for managing the transport risks and documents compliance; and purchasing appropriate insurance to recover losses.

Monetary Risks

Sourcing from international suppliers can reduce overall costs by lowering the cost of labor and proximity to raw materials. However, other monetary risks can impact the price. These risks include unanticipated and rising shipping costs as well as transaction costs like contract management fees, documentation fees, third-party supplier audit fees; cost of loss of goods in transit and delays; costs arising from differences in time zones, transport delays and extra time for storage; cost for managing the supply chain; and International Exchange Rates.

The monetary risks can be reduced by researching the financial exchange rates, economic trends, and policies of the supplier’s country; comparing the exchange rates of different countries; using insurance for credit, cargo, and transport; setting fixed quantities and cost of goods and timelines for services; using currency exchange rate insurance; selecting appropriate currency for contracts; using third party providers like freight forwarders, and trading houses; using a small number of suppliers, high volumes and regular costs which will lower per unit prices and lower implementation costs. 

Risks Due To Cultural Differences And Language Barriers

Poor and complicated business communications due to language barriers and cultural differences can cause issues like shipping delays and incorrect orders, which can lead to disruption of business dealings. This can create a negative experience for all the parties involved. This can be avoided by being culturally sensitive, which can be done by researching the various aspects of business dealings in the source country, like the country’s culture, core societal values, how organizations are run, and communication styles. You may also hire a staff person or a buyer’s agent who can speak the local language and is familiar with their culture, or even hire a translator who is familiar with your business. Make sure you keep track of their cultural holidays as it will help schedule the orders and shipments, and also use local legal counsel and agents when negotiating contracts. 

To Sum Up

Minimizing the above risks will require you to set common policy guidelines at the contract negotiation stage. You will also need to make strategic-level sourcing professionals aware of the country’s various standards, laws, regulations, and business practices to ensure all the guidelines are followed. 


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