To student: Instructions: 1. Read the case study 2. Answer the following questions: : What factors should Pam consider in making a decision to source globally? | : If you were a purchasing consultant hired by Pam, which cost effective method can you advice her to use in sourcing Dried floral globally. | : As a procurement officer what lessons can be learnt from this case study and what actions would you put in place? | : Why is Pam able to save 40 percent by buying offshore? What is the difference about the overseas transaction versus the local transaction? : What are the issues that Pam may encounter with global sourcing that she is not expecting currently? | Note in each of the question you are suppose to explain, discuss and motivate your answer, try to be resourceful Assignment should be done in groups of 5. No individual assignment will be considered Due date 10 October 2012 | | Question 1 What factors should Pam consider in making a decision to source globally? | Pg. 4-5| Question 2: If you were a purchasing consultant hired by Pam, which cost effective method can you advice her to use in sourcing Dried floral globally. Pg. 6| Question 3: As a procurement officer what lessons can be learnt from this case study and what actions would you put in place? | Pg. 7| Question 4: Why is Pam able to save 40 percent by buying offshore? What is the difference about the overseas transaction versus the local transaction? | Pg. 8| Question 5: What are the issues that Pam may encounter with global sourcing that she is not expecting currently? | Pg. 9-10| Conclusion| Pg. | References| Pg. | 1. What factors should Pam consider in making a decision to source globally? 1 Total landed cost.
Total landed cost include factors like transportation, customs and duties, brokerage services (both at origin and destination), banking fees, financing and insurance. It should also be mentioned that there could be additional, unexpected costs. For example; if the customs decides to examine the freight, you should add in charges for the examination and local coordination charges. 2 Product quality. The quality of the product needs to be defined so that the supplier and buyer understand and are in agreement. The quality of the product has consequence over and above the unit cost.
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Poor quality or defective products affects everything downstream and returns drain the business and taking up resources. Defective product may need to be sold at a discount or written off as a loss, each of which affects the bottom line. 3 Logistics capability. The type of transportation that is available, domestically and internationally. The goods need to be transported to an airport or seaport for transport. Investigate if there is a reliable transportation infrastructure in the country? Once the freight is ready for international transport, is there space or lift available?
Seasonal fluctuations and weather should be taken into consideration. 4 Location. The location of a country may make it a more attractive source for your product. Location is very important and should not be taken lightly. Consideration should be given to larges importer countries like Mexico and Canada. The country location also benefits such as doing business in the same, or close, time zones. 5 Trade regulations. Governmental regulations can enhance or detract from the ease of doing business with a given origin. Before any sourcing decision is made, it is imperative that all trade incentives or restrictions are evaluated carefully. Finances. The financial aspect should be evaluated in addition to looking at the actual cost of goods. Factors that should be evaluated are; terms and conditions that could be negotiated with suppliers, evaluate the risk with the manufacturer and the insurance required to source from a specific supplier. Look at how this affects your cash-to-cash cycle. 7 Time to market / responsiveness of supplier. The time to market is a critical factor in sourcing decisions. If your competitor has product available more quickly, the result could be lost market share and loss of revenue.
Evaluate or agree with your supplier the possibility of small changes to the product, or sales exceeding expectations and quicker transport times. 8 Value-added services. Identify additional services available to add value to your product. Evaluate the cost of more efficient attachments to your product. Agree the supplier guarantee that it will pack the goods to ensure it arrives intact at destination, to eliminate mistakes of cutting corners on the packaging. 9 Communication / IT capabilities. Open dialogue and communication is very important between the supplier and buyer.
Late, missing or inaccurate documents can cause delays of customs clearance and, ultimately, delivery to destination. E-mail and the Internet, and phone calls, can enhance supply-chain efficiency. 10 Human toll. Human effort and cost should be a critical part of your decision. Human effort to visit and work with suppliers overseas, the costs of airfare, hotel and food and the cost of time away from the office and family. 11. Exposure to financial and political risk All countries and economies are subject to financial and political turbulence.
As such depending on a single country or region for sourcing could be a very bad idea. 12. Vigilance issues When a company sets up an office or its subsidiary in a different region there may be issues related to monitoring. Which may in turn lead to non-productivity and a slip in quality assurance. 13. Hidden cost due to cultural differences Different region have diverse cultural morals that could hinder the attainment of economies of scale for the business. 14. Other issues Where manufacturing is outsourced to nations for cheaper labor, there could be issues pertaining to lead in time
Summary The above represents the key factors to consider when making global sourcing decisions. Whether you are new to importing, or just considering sourcing from new origin region, remember there are numerous resources available to help make a well-thought-out choice. Once an informed decision is made, there is a huge opportunity to enjoy conducting profitable business in the global market. 2. If you were a purchasing consultant hired by Pam, which cost effective method can you advice her to use in sourcing Dried floral globally. Employee productivity It is important to establish key performance indicators to measure employee production, and retain and reward top performance. Productive employees lead to cost savings. * Replicating best practices If your competitor has used innovative, cost-saving processes, you too can incorporate these in your business rather than reinventing the wheel. * Cash management Small companies with limited to no staffing in the financial area often do not consider the impact of improved cash management. * Review Marketing strategies and plans
As marketing is a vital part of any business, a lot of finances is spend on it. Get the details of all marketing strategies and programs that are not giving good results. * Reassess vendor contracts The outsourced functions by Pam should be reviewed. Fresh talks can be initiated with potential vendors and after Comparison of the cost incurred, the vendor can be finalized. This activity can help cast reduction in a big way. * Safety and buffer stock She has to make sure that she order new stock before all her safety and buffer stock runs out * Quality stock
She has to make sure she imports only the quality form well-known international suppliers whose products can meet the ISO standards and are environmentally friendly * Select the correct mode of transport with: Lowest total cost Fastest delivery time Highest storage space Safe transport * Select the best supplier with : The best products Lowest asking price Shortest lead time * Develop a relationship with the supplier to ensure that he becomes a direct supplier * Eliminate 3rd party contractors cost (intermediaries) * Purchase in high quantities and negotiate a discount * Conceder the exchange rate Make use of countertrade if possible 3. As a procurement officer what lessons can be learnt from this case study and what actions would you put in place? * The decoctions that can be learnt is that before sourcing globally a thorough research must be done for items that you want to source, which is why she ends up with the net income of $4000 a first because she wasn’t certain whether they will be demand for gallery items. * Actions to put i practice would be to consider establishing an international procurement office because they can evaluate supplier physically and personally, negotiated for price and other terms. I believe that Pam is creating extra expenses ,and work for herself witch se can avoid by invest in a bigger transport vehicle to transport the product from point A to B. * Pan needs to deal directly with the supplier in Israel and Holland. I would advise Pam to determine the amount of dried flowers she will be selling in 7 month and order every 6 months. This will help Pam to eliminate shortages of products. * I believe that Pam has the opportunity to reach her expected profit for the next year. For this to happen Pam needs to hire staff/ employees.
Pam is over work and when she hires employees to help. This will increase her productivity which will increase her sales and profit. 4. Why is Pam able to save 40 percent by buying offshore? What is the difference about the overseas transaction versus the local transaction? * Because she will be dealing directly with the suppliers which will result in the lowest purchase prices including transportation and import duties and they will be delivering boxes to her door. She would have more time to focus on her business and have fewer worries.
She will be able to wake up in the morning to go and buy goods directly from wholesalers. Responsibilities of deliveries and transportation are thus transferred to the suppliers. * Difference between local transactions and overseas transaction Local transactions: These transactions are confined to objects which resides inside one particular JVM. The primary difference is that local transaction are sing JVM level. Local transaction in Java can be implemented using the JTA. Overseas transactions: * These transactions may encapsulate objects which are distributed on various JVM’S.
Global transactions are implemented through two-phase commit design implementation. * Global transactions need different design approach which can be classified as declarative transaction management and programmatic transaction management * A global transaction is a mechanism that allows a set of programming tactics, potentially using more than one resource manager and potentially executing on multiple servers, to be treated as one logical unit. * A global transaction may be composed of several local transactions, accessing the same resources manager. 5.
What are the issues that Pam may encounter with global sourcing that she is not expecting currently? The risks from global sourcing There are a few factors that can affect the implementation of global sourcing. These include political activities, legal and cultural differences between various countries. Companies also have to face problems like transportation, technological and capacity weaknesses in production, and lack of management systems. Other features are languages barriers, customs, and trade regulations. Some risks of global sourcing are naturally also shared with the risks of outsourcing.
During the process of outsourcing, there is a risk of confidential information leaking and the competitive advantage of companies. International logistics can also be a problem for global sourcing or transportation and logistics networks are perhaps not as reliable as in the home country. . Global sourcing involves the following risks: 1. Security Risks: Developing countries that are identified for low cost global sourcing are subject to political uncertainty or even internal political turmoil. That risk needs to be assessed in terms of whether your offshore supplier will be able to provide the products successfully. . Cost Risk: Different cultures and different time zones can results in other hidden costs when a company adopts global sourcing. In addition, monitoring global manufacturers also means greater costs. 3. Quality Risks: Global sourcing can lead to quality problems that, if not managed well, can damage the company’s brand and result in a huge financial penalty. 4. Intellectual Property Risk: The proprietary knowledge regarding design, engineering, materials and other elements can be exposed to the light of day easily. So the enterprises have to take the risk of losing intellectual property.
Risk Mitigation While global sourcing offers considerable advantages, it has many risks and challenges in addition to the inherent risks found in every project. Each country has its own set of business practices, cultural issues, legal requirements and political, environmental and infrastructure risks that must be understood and handled successfully. As global sourcing gains momentum and foreign governments embrace its ability to attract business and capital, these hurdles are being overcome, but they still exist. Potential problems * Cultural issues
Lack of familiarity with foreign social and business cultures and communications issues that surface based on differences, are the biggest reasons international sourcing activities fail. * Long lead time Variable shipping schedules, unpredictable time requirement for customs activities, the need for greater coordination in global supply management, strikes by unions, storms at sea, and increased security procedures usually result in longer lead times. * Additional inventory Pam might not be able to determine additional inventories to buffer as it could be difficult if there are inflexible lead times. Lower quality If Pam decides to get into a contract with a supplier before checking the quality of their products, it will be a major problem for her business image. * Social and labor problems Ensuring social Compliances with your country’s import laws. * Higher costs of doing business The need for transactions, communications problems, logistics and so on, add to the cost of doing business with global suppliers * High opacity Pam may encounter opacity problems which refer to hidden cost in the products she wants to source from global supplier. Develop a working knowledge of contract Pam must be able to negotiate not only price but also payment terms, returns on repair compensation and safety or buffer consignment inventories. Global Sourcing Example Reference * Sara Ireton JPMorgan Global Trade Services www. jpmorganchase. com/trade * http://www. joc. com/2010/10-factors-consider-when-sourcing-globally * http://hj. diva-portal. org/smash/get/diva2:318924/FULLTEXT01 * David Burt , Sheila Petcavage, Richard Pinkerton ; Supply Management Eighth Edition Chapter 12, pg. 273, Global Supply Managemen