Online Sourcing

International Trade Operations

"The Internet represents an extremely efficient medium for accessing, organizing, and communicating information." (Peterson et al., 1997, cited by Citrin et al., 2000). Companies invest a lot of money in new information technology in order to gain competitive advantage through improvement of proficiency and effectivity. New technologies help companies to compete successfully in the markets and to improve management decisions. (Hirschheim, 2007). Furthermore, as companies want to gain competitive advantage, they try to reduce cost of their sourced materials and components from least-cost suppliers. The one of the ways how to achieve this goal is online sourcing.

Globalization is in the mind of all companies when we talk about gaining competitive advantage. Global sourcing is one of the areas where benefits of globalization are widely taken into account by managers. And as everybody wants to be the best and beat the competition we can notice the strong desire to reach more and more sophisticated levels of global sourcing (Trent and Monczka, 2003). Internet is the medium that doubtless plays a big role in global and international sourcing and gaining competitive advantage.

According to the research by Monczka and Trent (2006), former professors at American universities, importance of global sourcing is rising. In 2000 companies covered by research sourced globally between 21 and 30 per cent of their annual spend in comparison with year 2005 when the global spend increased to interval from 31-40 per cent. Moreover, it is expected that total amount of annual spend coming from global sourcing will rise to 41-50 per cent. From the above research we can observe that the percentage of nondomestic spends is ascending. As mentioned in the beginning companies are trying to gain competitive advantage in the process of global sourcing by reducing the cost. This issue is intimately connected with the role of internet as internet is a tool to reduce costs. The more the global sourcing is spreading, the more Internet is used for accessing information about suppliers, fastening processes and cost- savings.

Lancioni et al. (2000) draws his attention to opportunities for companies that arise from using the internet when sourcing globally. Firstly, internet is used for browsing vendors' catalogues. In this case buyers can order directly from suppliers. However, for many companies this seem to be risky, as it is very hard to asses reliability of suppliers, especially when we are talking about sourcing globally, in many cases from unknown and emerging markets. Therefore, there is another possibility minimizing risks of global sourcing- utilisation of consulting agencies. There are many global sites concerning online sourcing. Some of them specialize in consultancy and giving advices on online sourcing, some of them create online marketplaces for buyers and suppliers and some of them go in for both activitie. For example, Alexa.com (cited by Anon, 2006) ranks Alibaba.com as the most visited and popular web page in the area of online trade. Alibaba.com enables buyers and suppliers to make worldwide business online through three marketplaces. There are over forty-five million registered users from over 240 places from all over the world (Alibaba.com). Alibaba.com belongs to the global site creating online marketplaces and is based in China. Now we will move to consultants. Teng (2006) categorize Baker & McKenzie among one of the top sourcing consultants. Baker & McKenzie present at their web page that they: "bring to matters the instinctively global perspective and deep market knowledge and insights of 3,900 locally admitted lawyers in67 offices worldwide." The consulting company Baker & McKenzie draws its attention to language, culture differences, taxes, legal requirements- all issues that are of concern when company want to source globally with success. As a last example we will state Asia Sourcing Network. Asia Sourcing Network help customers with finfig potential suppliers, but as well as with evaluating capability, reliability and competence of supplier.

When talking about the role of internet in global sourcing we must mention internet used for online auctions. Generally we distinguish between direct auctions and reverse auctions (Bartezzaghi, 2005). Situation when there is one seller and many buyers is known as direct auctions. As a result price goes up. On the contrary, reverse auctions represents one buyer and many suppliers, it means that suppliers will compete in order to get contract and price will go down. The Internet is full of different kind of auctions for different kind of customers regarding what companies are looking for. In some cases global sites creating marketplace themselves offer different auctions.

As customer service problems are very important and must be solved as soon as possible, Lanconi et al (2003) see another role of internet in opening up this fast way of connecting buyers and suppliers in terms of communication. The internet provide the possibility to provide 24/7 customer service, if there are any problems with late deliveries, shipments or just if there is a demand for any kind of requests or information, internet is on the place to contact vendors or buyer, for example by e-mail. As a result there is more responsiveness for customer problems. For example Waste Management Inc. is trying to enlarge provided customer services by the use of the Internet. There is a possibility for customers make their comments, requests or complaints online. There is a very positive feedback on this service. We can mention Asda as well. Asda is a part of Wal*Mart family. Asda provides website for its supplier. Asda representatives launched this website in order to provide excellent communication to their supplier base. Supplier can find here all proper information, policies, answers to questions. If it is not enough and they strive for more information they can contact Asda. Website is designed for existing suppliers as well as for new suppliers. New suppliers can find requirements and some basic facts of sourcing process. Once suppliers are selected they can login using their 6 digit code and they get access to more information such as delivering and payment issues, legal issues or also advices how to sell more. From my point of view this is a competitive advantage for Asda because as I was browsing web sites of other retailers I have not found anything similar. It is possible they provide similar service for existing suppliers, but they do not attract new suppliers.

As in the past years internet is widely used not only by individuals for basic operations, banks are not trailing and offering new services, for example internet banking. Therefore, the internet serves also payment issues of companies. There is a possibility of paying invoices electronically (Lanconi et al., 2003). And with the spreading globalization and global sourcing, banks are providing new and new online services ready to serve the needs of companies sourcing globally. This issue is as well as intimately connected with the benefits resulting from e-sourcing such as time and cost savings. We will discuss this issue later in the text.

Internet opens up opportunities for companies to check their orders online. Companies are able to check progress of their orders and monitor shipments from time they left supplier by the time they reach them (Lanconi et al., 2003). It is very important on the one hand for the proper operations of buyers, as many companies are now implementing just-in-time method for their stocks. On the other hand, it is also important for suppliers in order to provide excellent service for buyers and make sure that stock reach their customers on time. As an example Ford Motor Company daily control via the Internet sold parts send to their buyers. For instance General Electric division of appliances takes advantage of the Internet while scheduling consignments sent from depots.

Companies are utilizing the Internet for many reasons. One of the reasons is the fact companies need to keep track with their customers, suppliers, it means in general with their stakeholders and shareholders. As marked before in the text, internet has a certainly big role in global and international sourcing. But the issue why should companies go online and utilize the Internet in sourcing is connected also with benefits resulting from the use of Internet.

As we were talking about the role of the Internet in global sourcing, many of the ideas presented above in the text can be linked to the benefits resulting from the role.

There are benefits resulting from online sourcing.

Firstly, remarkable cost savings can be realized through online sourcing. This cost savings are mostly achieved as a result of reduction of purchase price. This reduction results from the bigger choice of offers in comparison with the sourcing without using the benefits of the Internet (Bartezzaghi and Ronchi, 2005). There are also reductions in labour costs and cost savings arising from the reduction in paper work . According to the survey made among industrial purchasers by Thomas Industrial Network published by Anon (2004) 21 per cent of involved companies counted the savings resulted from online sourcing in the amount of $501 per month. 18 per cent stated that they shaved even $1000 or more per month.

In 2003 British Airways faced financial problems. They decided to benefit from growing online sourcing. They set the objective to save ?300 million in two years by making online sourcing obligatory. They launched Ariba's online ordering system (Parker, 2003).

Another example of savings resulting from online sourcing stands for the immense oil group SINOPEC which is based in China. This group started online sourcing in 2000 and from that time they saved CNY 7.6bn in 2001, CNY 12bn in 2002, CNY 24.2bn in 2003 and CNY 48.2bn in 2004.

The issue of cost savings is also linked to the inventory levels. Nowadays just-in-time method of managing stocks is being widely implemented in order to save costs. By using special software and information technology, there could be a real time transmission of information between supplier and buyer in the process of online sourcing (Presutti, 2003). In the appendix we can see the result of survey which shows the percentage of companies that their business activities are directly linked to their suppliers.

Secondly, it has not escaped managers' notice that time spend on sourcing has been reduced. Sourcing cycle time has been reduced in average by 25-30 per cent (Presutti, 2003). This reduction means companies need less time to find suppliers that in the end turn in cost savings. Aberdeen Group research even pointed that global site Alibaba.com, mentioned above in the text, helps companies to reduce their sourcing cycle time to quarter. Between two and four weeks is the time needed for Alibaba.com members to sign contracts with suppliers. Surprisingly, 17 per cent accomplished making agreement in less than a week time.

To be more specific, according to Thomas Industrial Network survey 51 per cent of companies saved 500 hour per month when switched to online sourcing, 13 per cent achieved 1,000 or more hours saved in one month.

Apart from above listed benefits, there are some additional benefits. Participants in ThomasRegister.com survey find it much easier to place order while sourcing online. They also experienced the possibility to get much more information from all over the world (Business Editors/High-Tech Writers, 2003). As before it used to be hard to find proper supplier or information from abroad, now there are global sites that are putting all suppliers and buyers on one place and make it easier for them to find appropriate information. Moreover, they are able to do so anytime, they do not need to take into account time zones.

Yu et al. (2008) see transparency in online auctions as another advantage. He asserts that transparency allows buyers and sellers come to effective conclusions.

From the all stated benefits resulting from online sourcing it can seem that companies should definitely source online and that the nirvana of seamless online sourcing has yet to become a reality. But as everything in the world also online sourcing has it pros and cons. If company decides to source online it must be aware of other important issues. As the main benefit are cost savings, companies should have in mind that they have to consider also money paid for consultancy and different hidden cost. According to Computer Reseller News (2002) these kind of costs should have been taken into account in order to get credible amounts of savings resulting from the use of the Internet. By this cost advantage is questioned.

Cost advantage is also questioned by online auctions. In some cases after the supplier is chosen, buyer discovers that seller is not capable of meeting his requirements. Therefore, suitable supplier must be selected for extra costs. This problem can be solved by verifying sellers before auction, however for extra cost

There is also ethical issue that can disturb seamless online sourcing and ruin company's good name. There are some cases when buyers placed false bids in order to push the price down. It is disincentive for suppliers as well as for potential customers.

Source: http://www.powerfulwords.co.uk/sample-assignments/business/online-sourcing.php

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