Identifying and mitigating global sourcing risks


Before you start, ensure that you have the best global sourcing and product experts that you can afford, says Sanet Shepperson (MCIPS) in this month’s SmartProcurement.

What is global sourcing?

If you google “global sourcing”, the definition states that it is the practice of sourcing from the world market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. A further definition is a process of identifying, developing and utilising the best source of supply for the enterprise, regardless of location.

For South Africa, where jobs are badly needed, first look local. Ensure that you support the local industries. Ask the question: can you not develop a supplier? The dti can possibly assist.

Only after ensuring that there is no local option, should global sourcing be considered.

There are many macroeconomic risks, for which the “steeple” factors (Social, Technological, Economic, Environmental, Political, Legal and Ethical) are good examples and which most of us are familiar with.

After taking the steeple factors into account, focus on the following risks and their associated mitigation strategies:

Risk 1
The scope of the project

The project scope must be defined, and separated from product scope.

Project scope is "the work that needs to be accomplished to deliver a product, service or result with the specified features and functions.”

Product scope "the features and functions that characterise a product, service or result."

If requirements are not entirely defined and if there is no effective change control in a project, then, frequently, scope or requirement creep arises.

“The scope does not include this” is a constant bugbear; it seems that scoping the organisation’s needs is always a challenge. The requirements of the scope can vary significantly from department to department.

Spend extra time on the range. Use cross-functional teams to agree and sign off the specifications. This is especially important if the specification is based on outcomes.

If the scope has been inadequately defined, you will overrun the budget and time allocation.

If the scope is incorrect, then the whole project might fail. In my experience, in some sectors the industry is evolving so fast that the organisation does not always know what it might need in two years. Now imagine a contract scope that covers four years.

Ideally, build flexibility into the scope. Structure it to include “must have” and “nice to have” deliverables. Ensure that both are in the scope and costed for. Confirm the cost at the beginning of the process, even if you may not use the product or service later.

Digital solutions to manage the scope include SAP and Oracle

Risk 2
Supplier due diligence

Use Carter’s “10 Cs” to determine if the supplier can deliver the scope requirements.

1. Competency – are they competent to fulfil the scope needed?

2. Capacity – the supplier needs to have sufficient capacity to fulfil the scope requirement.

3. Commitment – the supplier should demonstrate their level of commitment to quality. They also need to provide hard evidence of the quality systems that they use: what is their framework to ensure quality? If the scope requires ISO9000, can they deliver?

4. Control – this is important because it includes control of the processes and internal procedures that should be looked at. The supplier can then establish a full profile, and specify how much control he has. Control can take various forms, for example, how much control does the tier 1 supplier have regarding receiving warnings from tier 2 suppliers that goods have become scarce or are no longer produced. There are many different aspects to control.

5. Cash – this is the financial standing of the supplier. Are they in a healthy position or are they teetering on the edge of a financial meltdown? Obviously the more robust a vendor is, the better they will be placed to withstand economic storms.

6. Cost – this is the cost of the supplies, but it is looked at in terms of the full cost of the products on offer. Note, dear reader, that price is not listed as the #1 issue to be considered - it is one of many significantly important factors.

7. Consistency – can the supplier ensure that it delivers the same product, to the same standard on every order?

8. Culture – Carter felt that the supplier should have the same values and ways of operating as the customer. In a sense, this is about compatibility and it makes sense for the supplier and the customer to have some shared values and practices. Otherwise the relationship could be strained in the future.

9. Clean – clean is a reflection of increased environmental awareness. Clean is about ensuring that the company complies with all statutory requirements and, in particular, environmental issues. So in a sense, suppliers are asked to demonstrate their ‘green credentials’.

10. Communication – although it may seem obvious, providers need to be asked how they will communicate with you. Will it be by email or telephone? Communication also covers the ICT software and applications that the supplier has. If they only have very basic ICT facilities, they will be unable to communicate effectively.

Assume nothing! Ensure that the supplier has been thoroughly vetted, ensure that you visit the provider’s premises and check references. If it is a large CAPEX project, ensure that you have a performance bond in place.

If the supplier fails, you will fail.

Additionally, have a provider plan “B” in place.

Digital solution to help manage the supplier: LexisNexus - it will check if the supplier is linked to any of your staff in any manner and rate the supplier’s capabilities and reputation as well.

Now you have the scope and the provider.

Risk 3
The contract that binds you

Be careful to make sure that you use South African law.

Ensure that you have the best legal team supporting the cross-functional team. Ensure that the scope is captured correctly and that the pricing is as granular as possible.

Make certain that local workers and project workers have a similar contract. Be mindful of HR issues, for you do not want the project to fail owed to “go slows” and strikes.

Include “time is of the essence clauses” to ensure timely delivery.

Confirm that key performance indicators (KPIs) and service level agreements (SLAs) are clearly defined.

Ensure that contract performance is actively monitored and managed to ensure that adherence is achieved. There will be value leakage if you do not control and manage this actively.

Digital solution to manage the contract: Oracle and SAP

Risk 4 (general risk)

Currency fluctuation
Ensure that you understand the INCO term that you are using. This needs to be defined in the contract.

In my experience, take out forward cover on all transactions. This guarantees the “landed cost” of the product, all things being equal. Furthermore, use trade finance to cover the cost of the goods. Most of the big banks can assist you with this.

If you don’t have visibility and accurate timelines for all shipments, you will fail! I have been using various suppliers for years to give me visibility and control of all multimodal shipments at any given time.

Digital solutions to report on transportation: Tradestream, Tec stream, LCM modules.

There are various project management tools you can use to track and manage your global sourcing project. Ensure that you use critical path analysis and understand the timelines. Follow up regularly, pick up the phone; do not just send a mail!

If you focus on the above and digitise your supply chain as far as you can, you will have success in global sourcing, whether you’re sourcing anything from Mining to Telecommunications.

To contact Sanet email her on



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