Recent studies have revealed that offshoring provides new, economically sound channels for product development. There are many avenues for securing a better price in your contract manufacturing and outsourcing initiatives, but far fewer to help assess the problems and challenges that come with engaging offshore suppliers.
Measuring cost reduction is easy. Within many organizations, the simple metric is enough to rationalize an outsourcing initiative. You should not, however, rely solely on this concern. For most organizations, a nuanced approach that considers a multitude of challenges will provide for a more productive, profitable relationship with an overseas supplier. By considering the following challenges, a company can better position itself globally to increase its volume capacity, develop market forecasts, and build strategic supplier networks with partners around the globe.
What Are the Challenges of Outsourcing?
1. Overcoming the Language BarrierIt has been said that to learn a language is to have one more window through which to look at the world. To expand on this analogy, it would be a herculean task to try to hold a conversation—let alone quote prices on an RFQ—with someone on the other side of a brick wall.
Companies may feel obligated to partner with international companies that have offices in their own home or more accessible countries without a language barrier. This could certainly prove convenient, but there is no guarantee the convenience will outweigh the potential savings, lead time advantages, or minimum EOQ that a company based solely overseas could provide.
The most straightforward solution is to develop a diverse hiring process that favors candidates with proficiency in the languages you have in mind. Having fluent speakers at the ready will not only facilitate discussions, but it also presents opportunities to optimize research and market exploration in overseas markets. This could mean better search results, more relevant suppliers, and an abundance of valuable market information on the industry in question and its key players.
Another effective and popular method is visual and graphic communication. These can take the form of photographs, product designs, physical samples, and more. Vision is a dominant part of the human brain, and it functions universally as a means of communication. This is especially true when prominent language barriers are in place. Exchanging physical samples, for example, allow organizations to interact with and closely examine a product or component at their own pace and conduct a personal review. Incorrect translation or misrepresentation of functional requirements are both unlikely and easily corrected when these inspections occur.
2. Solving Conflicting Interests and ProcessesDuring my time engaging with multiple overseas suppliers, we were confronted with concerns and issues related to differences in documentation and procedures. These significantly slowed down each step of the sourcing process. Contract negotiations focused on service level agreements, nondisclosure agreements, or commercial term agreements take up precious time that could otherwise be spent pursuing other strategic initiatives. Communications regarding product specifications or dimensions can take days to answer as a result of drastic time zone differences and general unresponsiveness. Throw lengthy documents like requests for information (RFI) into the mix, and you are welcoming even more errors and miscommunication.
Some solutions include conducting the processes over the phone to display a higher level of investment in the initiative. This may illustrate to suppliers an admirable level of transparency, trust, and ‘skin in the game’ from your business. Hopefully, this is the sort of behavior they consider mimicking.
Additionally, basic principles of conversation apply. I have found that suppliers are more responsive to emails that highlight their organization’s name or the name of a key contact. This could indicate that the RFI was curated for suppliers like them, essentially framing it as a direct call to action. Most importantly, I found constant communication to be critical in retaining supplier interest and persuading them to adhere to requested procedures. Having patience and remaining firm in your company’s resolve while continually providing an open means of communication allows for the free flow of information and nurtures a better client-supplier relationship at the end of the sourcing project.
3. Adapting to Market ChangeOngoing developments such as the China–United States trade war, the 2018 holiday e-commerce season, and the supplier consolidation of ocean freighting companies could impact pricing and drastically change the playing field for procuring products and services overseas. Tariffs introduce new barriers of entry, the holiday season elevates demand for consumer goods and warehouse operations, and shipping mergers and acquisitions affect the balance of power in the market. Changes to offshore suppliers can rapidly and fundamentally affect inventory planning and management efforts. Therefore, new market analysis is essential in adapting to overseas markets and developing strategic purchasing methods. This is especially true for companies dependent on Just-In-Time purchasing, expedited shipments, or order fulfillment where time is of the essence and rapid market movement is punitive.
Staying relatively ahead of—or at least amenable to—change could mean discovering new, readily-available cost reduction strategies. These can then be implemented ahead of competitors for an advantage in the market. For example, as China slowly but surely modernize, the cost of Chinese labor is rising. Forward-thinking manufacturers have anticipated this trend and are acting on it. They are now targeting raw material suppliers elsewhere. Adapting to this situation in the long-run could reveal cost-saving opportunities in developing markets such as Cambodia and Brazil.
Taking a proactive approach to addressing these common obstacles to outsourcing initiatives could mean developing competitive advantages, boosting efficiency, and discovering cost reduction programs on the horizon.