Page 11 - Logistics News Oct Nov 2020

Opinion

Managing global sourcing

is risky business

By Wesley Niemann, wesley.niemann@up.ac.za
A study conducted at the University of Pretoria investigated the reasons behind South
African clothing and textile retailers’ decisions to source globally, what risks these firms are
exposed to and how these risks are identified and managed.

BETTER PRICES, higher quality, greater variety and better prices or result in delayed outputs. These
shorter delivery lead times are just some benefits aspects also make visits to sourcing countries more
that South African clothing and textile retailers challenging. Several other risks were indicated, such
experience when sourcing their products globally. as supplier reliability, which often affects the quality
Combined with the uncompetitive nature of the of items for which the retail owners present custom
South African clothing and textile manufacturing design requirements.
industry, these benefits are often the very reasons Given the size of participating firms, the majority
driving many firms’ decisions to take the global of risk identification approaches used tended to be
route. informal in nature and were conducted at the sole
Whilst many benefits could be leveraged in global discretion of the clothing and textile retail managers.
sourcing arrangements, firms should tread carefully Some participants used a landscape analysis as part
as the increased complexity of these arrangements of their risk identification process, where the firm
may very well amplify the firm’s exposure to risk and assessed the sourcing country’s political, economic
disruptions. and environmental conditions by conducting online
A study conducted at the University of Pretoria research. Informal product quality checks were
showed that the clothing and textile industry conducted by several firms to ensure that products
sourced its products globally for a variety of reasons. comply with order specifications in terms of design
Access to lower cost goods and better quality was a and quality before being packaged for shipping.
major influencing factor in participants’ decisions to Supplier pre-buying reviews were conducted in
source globally. Limited or lack of local supply and which owners checked suppliers’ business profiles
access to more variety were noted by participants as and online reviews before making a decision to
significant push factors for small clothing and textile source from any particular one. Exchange rate
retailers to source globally. Global manufacturers monitoring through regular rand to US dollar
appear to be more up to date with the latest trends exchange rate checks were regularly conducted.
and can provide products not available locally. Ease Though informal, multiple approaches to manage
of access to the market and familiarity with the risk were reported. Exchange rate fluctuation
sourcing market significantly influenced decisions on buffers were either proactively or reactively built
which countries to source from. Several participants into participants’ profit margins to manage the risk
noted that having family or friends from the sourcing of exchange rate fluctuations. Hedging tends to
country, or being a native from that country, created be a better alternative, but the costs involved with
greater ease of access to that particular market. hedging prohibit the majority of small retailers from
Participants indicated that complicated and making use of this approach. Dual transportation
costly logistics added a significant risk element as by means of separating orders into batches and
many items are damaged or go missing during the transporting them individually was a method only
mandatory customs clearance activities. In addition, employed by a select few of the participants, but
they experienced delays in the clearing of items, seemed to be effective nonetheless. Managing
which increased overall lead-times. Political and communication and cultural barriers using mobile
economic instability in the South African context translation applications allowed participants to
makes fluctuating exchange rates a constant improve their negotiation abilities and assisted in
problem, as the majority of global purchases are securing the supply of products.
paid for in US dollars. These fluctuations drastically The risks associated with global sourcing are
impact the firms’ purchasing power and ultimately a reality for many firms operating in other retail
profit margins as they cannot increase their contexts. This study identified a range of informal
prices as often as the exchange rates fluctuate. risk identification and management approaches that
Communication and cultural barriers often lead can be implemented without the need for major
to the inability to negotiate with suppliers to get investments in capital or time. •

October/November 2020 | Logistics News 9