Global Sourcing vs. Domestic Purchasing

global sourcing vs. domestic purchasing

In this paper, the benefits of global sourcing will be better for a company rather than domestic sourcing. From there, the benefits will be discussed in details why global sourcing will be more profitable than domestic sourcing.

Global sourcing vs. domestic purchasing has been a debate but in all reality if a company wants to expand their business, they have to go into global sourcing in order to receive other revenue. Within my approach and the company that I will use as an example, Friar Tucker can learn from the Goodyear Tire & Rubber Company to use global sourcing methods. Goodyear Tire & Rubber Company has been known as the largest tire company in the world and has achieved paramount success. However, there have been issues within the company due to its new strategy within their market that coincide with the potential decision-making issues that Friar Tucker International (FTI) is experiencing in regard to how to manage there operational requirements with the recent proposal of creating the new expanded line of services required. Although FTI has already developed the project scopes and elements, the strategic management process can be reviewed with Goodyear Tire & Rubber Company for comparative analysis. The main issue that Goodyear Tire & Rubber Company dealt with was its outsourcing efforts, which occurred in 2002 (Global Logistics & Supply Chain Strategies 2006).

Outsourcing and subcontracting was and still is certainly appealing to the company due to the potential increase in profit, cheaper or more efficient labor and efforts to become more global in the tire industry. The decision was made in the company to begin outsourcing operations in the late 1980s however; the company did not consider the impacts of the outsourcing until it became a problem in 2002.

Introduction

America is the melting pot of the whole world, seen by the rest of the world as the land of opportunity, and the land of the free but sometimes companies have to use global sourcing to be successful. "The reasons behind the progression from domestic to international purchasing have been well studied, along with the issues associated with the progression. (3) Organizations that practice strictly domestic purchasing (Level I) often progress toward international purchasing (Level II) because they are confronted with a requirement for which no suitable domestic supplier exists or because competitors are gaining an advantage due to their sourcing practices. Level I companies may also find themselves driven toward international purchasing because of a supply disruption, rapidly changing currency exchange rates, a declining domestic supply base, inflation within the home market or the emergence of new supply sources. International purchasing at Level II is usually limited or performed on an ad hoc or reactive basis" (Trent, Robert J.; Monczka, Robert M. 2005). Therefore, companies can have more supplies and do not have to worry about a declining domestic supply base if they proceed in global sourcing.

Background

Americans want a future that has economic prosperity that will be more abundant. This is because the American life consists of material prosperity as much as in civil liberties or political democracy is old. However, since the structure of globalization has to be reconstructed in order to following. If economics and political figures do not fix the globalization structure, America is not what it is supposed to be (Bowman 2006).

In the twenty-first century, economic changes were threatening the third American middle class because U.S. corporations started to transfer production jobs and service jobs to low-wage workers. Along with that, in many Third World countries of export-oriented development strategies made the global market for both skilled and unskilled labor to grow bigger. Reducing the cost of such imports as toys from China and shoes from Indonesia, it destroyed the jobs. Unfortunately, every sector from foreign competition, an ever growing number of manufacturing and service jobs were eliminated by technological innovations, which is a trend that will probably prove even more important than globalization over time (Are We Still a Middle Class Nation).

Problem

Due to technologically driven increases in productivity, advances in manufacturing and automation have slashed the prices of consumer appliances such as televisions and personal computers. However, productivity growth threatens the middle class and other social classes in three ways due to the poor structure of globalization, which could increase economic growth if reconstructed correctly (Are We Still a Middle Class Nation). "As organizations search for new and better ways to compete, global business strategies will continue to receive increasing attention. One area in which globalization can move from concept to practice is global sourcing, an advanced approach to sourcing and supply management that involves integrating and coordinating common materials, processes, designs, technologies and suppliers across worldwide buying, design and operating locations. Since most organizations do not have well-developed global sourcing strategies in place, improvement opportunities in this area are attractive and as yet largely unrealized. Shifting from a narrow cost-reduction emphasis to an emphasis on globally integrated and coordinated sourcing strategies should improve an organization's competitiveness" (Trent, Robert J.; Monczka, Robert M. 2005). Therefore, a cow in a foreign country makes more money than a company who is doing domestic sourcing.

My approach

Using my approach for example, a company named Friar Tucker will have to outsource most of the operations to a construction vendor on its Galleria project since FTI does not currently possess the experience needed to handle such projects. This could erode at initial profits and create schedule and cost challenges if they use domestic sourcing because they would be limited to what their country had in supplies. Nonetheless, the Galleria project will serve the very important purpose of building new competencies to address FTI's current focus areas by doing global sourcing to reach more suppliers. Further, this new project will enhance the brand image of FTI and attract different kinds of patrons who will enhance FTI's customer base. Upon project completion, revenues should begin to flow in quickly and continue to increase with time. The Galleria project will enable FTI to drive growth and thus coincide with its vision of becoming a top 10 hospitality service provider. What makes this project even more lucrative and attractive at this time is that it will produce multiple revenue streams because of the diverse scope of the project and by doing global sourcing.

Evaluation/assessment

The implementation plan for the Galleria project will begin with selection of the specific design and construction process for the facility. Together with Friar Tucker's Project Selection Committee, Atoll Solutions' design team will create a concept that suits the diverse needs of a hospitality services provider while attempting to appeal to a broad customer base, which will require global sourcing. Although the services that the Galleria project will offer are clear, the overall layout and architectural design has not yet been chosen. This is an important first step so that the Atoll team will know exactly what building materials to procure, how much they will costs, and in what order to begin the construction activities. Design has the added importance of determining what scale facility will fit on the Galleria property. Ambitious to get started, the design team will work to complete this before May 15th.

Discussion

Although Atoll Solutions has provided an overall bid, a breakdown of cost analysis should be created to allow sufficient monitoring of the budget throughout the project implementation process when indicating global sourcing. The collaboration effort between Friar Tucker and Atoll Solutions is important and not simply a solo creation by the vendor because organizational culture, structure, and team climate can strongly influence the importance attached to cost and time estimates and how they are used in managing projects (Gray & Lawson, 2005). Tanaka will ensure that this action item is completed before March 31st.

From there, FTI has built a renowned reputation for the organization based on the type of project management skills that are implemented that can include the knowledge of global sourcing and the understanding of how to use it rather than using domestic sourcing, which could be limited. FTI has maintained their continued success by ensuring that projects have a flexible schedule, cost, necessary experience, financial stability, process maturity, and quality of resources. As long as FTI continues to implement these necessary contributions success will continue to shine brightly in their future.

Further open problems

With domestic sourcing, a company understands what they are getting by using it because it is from their country. However, when global sourcing, a company may get what they paid for at a low cost. Furthermore, the cultural difference may be an issue when global sourcing. "When considering risks, one needs to identify the hurdles that can impede progress toward quickly and smoothly integrating an offshore supplier. In an offshore destination these hurdles include inadequate government support, unorthodox country laws, and cultural differences. Proactive involvement with the government and strong understanding of the laws of the land can mitigate the headaches associated with outsourcing" (Frahm 2010). Therefore, at times, it may be better to domestic sourcing so that there are no cultural difference issues.