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Article Excerpt
Today's business environment, perhaps more than at any other time in modern history, demands a continuous search for new sources of competitive advantage. Lasting success requires steady and sometimes dramatic cost reductions, quality and delivery improvements, reduced cycle times, and improved responsiveness to customer, competitive, and financial market demands. As organizations think about the best way to respond to these demands, the development of global strategies and approaches, including global sourcing strategies, will become an increasingly attractive option.
Increased globalization is clearly on the minds of most executive leaders. A survey of CEOs by the Foundation for the Malcolm Baldrige National Quality Award revealed that nearly 95 percent of CEOs indicated that becoming more global was their top challenge as they looked across a three- to five-year planning horizon. Nearly 80 percent of CEOs mentioned reducing cost and improving global supply chains as a top priority and challenge. Given the importance that CEOs place on globalization, understanding how to define and operationalize this topic should be a major concern.
Since most organizations do not have in place well-developed global sourcing strategies, improvement opportunities are indeed attractive and largely unrealized. As will be discussed, global sourcing involves proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations. While integrated global sourcing has yet to receive the attention it deserves from executive leadership or the academic community, this topic will receive increased scrutiny as organizations search for new ways to compete.
Looking across most industries results in one clear conclusion--competitive and customer pressure to improve is relentless and severe. Those firms that succeed will be the ones that have learned how to leverage and coordinate their activities on a worldwide basis. For many, integrated global sourcing may well offer one of the best opportunities to achieve the kinds of performance breakthroughs and consistency required to compete in highly competitive markets.
The objective of this article is to replace anecdotal perceptions and accounts of global sourcing with research-based findings. These findings will help supply managers better understand what it takes to shift from basic international purchasing activities to integrated global sourcing strategies and approaches. Without this understanding, it is unlikely that a shift toward integrated global sourcing will occur at predicted levels.
Satisfying this objective requires addressing global sourcing from various perspectives. The first part of this article presents a literature review and concludes there is a need for a greater understanding of integrated global sourcing. The second section describes the research that supports the presented conclusions. Third, a model is introduced that identifies international purchasing and global sourcing as progressive levels along a continuum. The fourth section describes the primary differences between firms that practice international purchasing and those that have matured toward higher sourcing levels. Next, managerial implications arising from the research findings are discussed. The article concludes with a discussion of future research opportunities.
A REVIEW OF WORLDWIDE SOURCING RESEARCH
During the late 1980s and early 1990s, a great deal of research focused on various aspects of international purchasing. The growth in this topic related directly to the declining competitiveness of many U.S. firms along with the belief that international purchasing could help reverse this decline. A major portion of international purchasing research has addressed the benefits that U.S. firms should expect to attain from sourcing offshore as they competed against aggressive and skilled foreign companies (Rajagopal and Bernard 1994; Birou and Fawcett 1993; Handfield 1994; Kotabe 1994).
Most researchers have concluded that unit price reduction (although not necessarily total cost reduction) is the primary benefit realized from international purchasing (Petersen, Frayer, and Scannel 2000; Trent and Monczka 1998). Contradictory views exist, however, concerning the overall cost and benefit of international purchasing (Levy 1995). One view maintains that technological and organizational advances have reduced the cost and increased the speed of transportation and communication, thereby facilitating international purchasing. A second view counters that distance remains a significant barrier to conducting business and that the true costs of international purchasing are often underestimated or unknown. Other international purchasing benefits cited in the literature include greater access to product and process technology, higher quality, and the ability to introduce competition to the domestic supply base (Trent and Monczka 1998).
Another focus of international purchasing research has centered on risk management. Risk can increase due to additional inventory across extended material pipelines, longer material ordering leadtimes, relying on new and unfamiliar sources of supply, total costs that may exceed unit costs, and managing different currencies, languages, and business practices (Vickery, Carter, and D'Itri 1993; Min 1994; Murphy and Daley 1994; Howell and Soucy 1991; Das and Handfield 1997; Carter, Vickery, and D'Itri 1993). International risk management is a well-researched topic from many operational and functional perspectives.
Other research has applied the efficiency focus of transaction cost analysis (TCA) theory (Williamson 1979) to predict the exchange or structure that governs international purchasing (Fraering and Prasad 1999). When high asset specificity is required, such as the assets that are required to produce a complex item, TCA theory predicts that global internal sourcing (hierarchies) will be the preferred method to minimize transactions costs (Murray 2001). However, a new stream of research has emerged that questions the reliance on TCA and its ability to predict the international purchasing exchange or structure that buyers will employ (Walker and Poppa 1991; Murray 2001). One view contends that it is now time to extend international purchasing research by integrating different perspectives with variables drawn not only from TCA but also from inter-organizational relationships, organizational capabilities, and country-specific factors (Murray 2001). The argument is made that reliance on either markets or hierarchies to facilitate exchange is an outdated way to view sourcing. Strategic alliance-based international sourcing, for example, is a viable option to achieve competitive advantage, even when major components require supplier-specific assets (Murray 2001).
Throughout the international purchasing debate, there has been minimal discussion about how to apply a strategic perspective to international purchasing, or what is termed and will be more fully defined as global sourcing. This is due partly to the fact that few Western firms actively engaged in strategic global sourcing, particularly during the period when an intense interest in international purchasing began to take place. This absence was addressed as far back as the late 1980s when the differences between international purchasing as an operational activity and international (i.e., global) purchasing as a strategic activity were noted. International purchasing means globalization in two respects--internationalization of purchasing activities, which researchers have addressed quite well, as well as adopting a strategic sourcing orientation, which is not addressed as well (Arnold 1989).
A recent study concluded that U.S. firms are not maximizing the potential benefit offered by higher-level global sourcing. Prevailing behavior has focused on opportunistic rather than strategic global sourcing. If these firms were to raise the status of worldwide sourcing from an occasional cost-cutting or quality improvement activity to a critical factor when developing global strategy, they would likely gain a long-range strategic posture that would improve their global competitive edge (Samli, Browning, and Busbia 1998). Unfortunately, most companies typically follow a reactive approach to international purchasing, concentrating on a search for the lowest price sources of supply (Alguire, Frear, and Metcalf 1994). It is also known that international purchasing decisions tend to be made independently of other units and at lower organizational levels, making the decisions more operational or tactical rather than integrated or coordinated (Giunipero and Monczka 1990).
A review of the literature fails to identify any in-depth analysis concerning how firms should pursue integrated global sourcing, or...
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