Supply Chain Secrets #20: Sourcing Internationally Part 3

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In Part 2: Sourcing Internationally, we covered how to prepare and execute the quoting phase of a strategic sourcing event.  The next phase is to qualify and select a supplier. Put on your combat gear, this can get messy. A thick skin and perseverance are essential for this phase. Switching to an international supplier and working through the associated issues will upset some people. Working through the selection process as a team and sticking to a rigorous process will help you overcome this resistance.

International Sourcing Step 11: Due Diligence

Once you have narrowed your field down to a few suppliers, send them an e-mail letting each know that they have been selected as a finalist and provide a timeline for the next steps in the process. This strengthens the supplier’s engagement with the due diligence phase. Now it’s time for the swimsuit competition. Provide the supplier with a list of items you would like them to complete. This may include a company presentation, completing a self-audit form, references, photographs, and details of their quality control process.  Look for additional feedback on the supplier from online forums or sourcing databases that rate suppliers. 

International Sourcing Step 12: Getting a Sample

Provided the upfront charges are not cost prohibitive, getting a few samples from a few suppliers is a good next step. Pick a several parts that are representative of the items being sourced. Send the supplier documentation and a sample part when placing the order. Set up a conference call to answer any questions after receiving the sample.  Sending a physical sample is a good idea anytime you order a new part from an international supplier. A “golden sample” reduces misunderstandings and improves the supplier’s chances for success.

Keep in mind samples can be misleading. A sample that meets your requirements is a good step, but doesn’t ensure the supplier will be a good selection. Conversely, a sample that is out of specification could be the result of a miscommunication rather than a lack of capability. What the sample will do is provide a foundation for additional engagement and discovery during the qualification process.

International Sourcing Step 13: Supplier Visit

International sourcing requires travel; it is very difficult to qualify a supplier without showing up. Some companies try to avoid this expense and simply hope for the best. This is a mistake.

The cost of a trip is short money, compared to the potential savings and the cost of getting it wrong. There are a number of issues to consider when setting up your visit; I will cover those in my next blog.

International Sourcing Step 14:  Negotiation

We have qualified our suppliers and we are prepared to make an award. It’s time for negotiation. International suppliers expect this step. The trick is to know when to say when. Sometimes suppliers do not have a good handle on their costs. They will win the business and realize that they cannot make money at the price they quoted. Some will come back and ask for an increase, others may skip steps in the manufacturing process. Once you have a final price, do some work to validate the supplier’s cost and profit. Have the supplier work through these details with you. It may mean that you have to make adjustments to your pricing to ensure that you are getting the product you expect.

International Sourcing Step 15: Develop a Detailed Implementation Plan

Cutting in a new source takes careful planning. Develop a detailed implementation plan by getting inputs from your cross functional team. The goal is to avoid surprises. This includes communicating with your incumbent suppliers. They will not be happy, but they will respect the fact that you didn’t blindside them. In general, do not shut off your current supply of parts until you have received at least one qualified production lot from the new supplier. For some more complicated parts you may want to consider splitting the business between your incumbent and the new supplier.

International Sourcing Step 16: Communicate, Visit and Adjust

International relationships take care and feeding. Inevitably, problems will arise during your relationship. Developing a solid relationship with your counterparts will help you successfully navigate these issues. Once things are rolling it becomes easier to let the communications slide. Avoid this trap by setting up an annual communications plan with the suppliers. This should include one or two visits a year. If the supplier can travel to see your facility, you should encourage them to do so. You may want to entice them by paying for their hotel room. Face to face meetings are the foundation for a strong relationship.

Next in International Sourcing: Supplier Visit Travel Tips

About the Author

Tom Petersen is the Managing Partner of ThreeCore, an operational consulting firm in Beverly, Massachusetts.  Tom consults for multinational companies engaged in the design and manufacture of high-tech products. His team is dedicated to helping companies create competitive advantages using innovative strategies and process-driven improvement. For more information go to www.threecore.com or follow Tom on twitter @3CoreConsulting.