Student Question

How can we locate and evaluate global suppliers? How can we organize for effective global supply management? And how can we overcome the potential problems faced in supply from offshore suppliers?

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This post responds to the third question: how can we overcome the potential problems faced in supply from offshore suppliers? One strategy many producers use is to secure resources from multiple suppliers, preferably with at least one located somewhat proximate to the site of production. Having at least two or more suppliers is a common practice that is generally referred to as "dual sourcing." If the producer has at least two suppliers for raw materials, components, and other items required in the manufacturing process, the producer can pivot to supplier #2 if supplier #1 has a problem fulfilling orders. Moreover, if one supplier is located somewhat proximate, theoretically it will reduce the shipping time for the supplies or components to arrive at the production facility.

However, over the past several quarters, because of the pandemic, there have been global logistics challenges that can mitigate the efficiency of using a dual sourcing strategy. This is because most (if not all) suppliers in most (if not all) markets have had issues obtaining and/or shipping items. In this case, whenever practical, a producer can order higher quantities of the materials and stock up in order to have them on hand. This does not make the most economic sense to minimize production costs and maximize production efficiency, but in the current environment it might help mitigate some of the global shipping and supply chain challenges currently impacting producers. Similarly, finding suppliers that are geographically closer to the production facility might entail shifting purchases to higher cost providers and further impact production costs and margins. However, this strategy can smooth out the supply chain issues that many producers currently face.

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