Global Procurement: Literature Review, Case Study and Challenges

This report provides a comprehensive analysis of global procurement, focusing on low-cost country sourcing (LCCS). It begins with a literature review, defining sourcing in procurement and its role in modern purchasing, exploring factors driving LCCS, and the challenges companies face. The report then discusses market assessment, negotiation, cost management, and supply stability within the context of sourcing. Part B presents a case study of Inditex, an apparel retail brand, and its use of LCCS, evaluating the benefits, risks, and outcomes of their sourcing strategies. The report concludes by summarizing the advantages and challenges of LCCS, offering insights into the complexities of global procurement in today's business environment.

Running Head: GLOBAL PROCUREMENT
Global Procurement
Student’s Name
University Name
Author’s Note

2
GLOBAL PROCUREMENT
Table of Contents
Part 1................................................................................................................................................3
Literature review..............................................................................................................................3
Sourcing in procurement..............................................................................................................3
Specific development...............................................................................................................3
Market assessment....................................................................................................................4
Negotiation...............................................................................................................................4
Importance of Sourcing in modern purchasing............................................................................4
Cost management.....................................................................................................................5
Supply stability.........................................................................................................................5
Role played by low cost country Sourcing..................................................................................5
Promising opportunities provided by alternative marketplaces...................................................6
New Strategies for overcoming foreign country procurement challenges...................................6
Summarization of the primary advantages of LCCS...................................................................7
Challenges associated with low cost country Sourcing...............................................................7
Part B...............................................................................................................................................8
Discussion on a company that has been using low cost country Sourcing for significant time
period...........................................................................................................................................8
Creating value for customers.....................................................................................................11
Conclusion.....................................................................................................................................11

3
GLOBAL PROCUREMENT
Reference List................................................................................................................................13

4
GLOBAL PROCUREMENT
Part 1
Literature review
Sourcing in procurement
Searching or tender process is utilised for selection of best products or services for a specific
expenditure category. Unfortunately Carter et al. (2008), informs that most of these processes do
not run wale which accounts for heavy losses and also so missing opportunities of making large
cost cuttings and accounts for delivery of low grade products or at times less favourable terms.
At the time of selecting suppliers through a Sourcing process, the consumer is involved in
collaboration with the internal budget holders. The internal customers can be considered as
colleague of the consumer in other departments like finance as well as manufacturing. They are
responsible for originally raising the demand for purchase and will be involved in the actual
transaction with the selected supplier. The involvement of internal customer is around 70% at
specific stages and in the subsequent stages it drops to around 30% (McAfee and McMillan
1989).
Specific development
Initially we need to understand the specific needs of the internal customers, who are people who
actually need the products or services for purchase. As a consumer they have to challenge as well
as translate these requirements in specifications so that is possible for the suppliers to
understand. The purpose of bias at this specification development stage is to reduce the total cost
as well as safeguard the competitive market at upcoming negotiations stage. A four step
processes involved in developing specifications in its turn (Boselie, Henson and Weatherspoon

5
GLOBAL PROCUREMENT
2003). These are assessment of customer needs, assessment of what the market needs to offer
developing specifications and defining the criteria for winning.
Market assessment
After a clear perception of business requirements again developed it is needed to formally invite
the suppliers to quote for the business. The formal approaches to market are two fold. The first
stage is request for information and the second state is the request for quotation.
Negotiation
At this stage the distance holder needs to identify the most promising supplier for negotiation.
During holding a meeting the target is to clarify the terms of their offer properly and achieve
additional value beyond what has been quoted by them. This can range from lower price to
negotiations for better quality of the product, improvement in payment terms and so on. At the
end of the negotiation period the deal is confirmed with the best possible supplier.
Lorentz et al. (2015), identify is in this context that many suppliers to develop an image of price
concession in the first of itself. In order to get hold of this concession the business holder should
develop competition for obtaining best results at negotiations stage and in order to do so the
business holder has to cite two or more alternative to the best supplier quotation. They can also
careful and nice all the quotations for obtaining a feel of stretching but substantiating the most
potential offer (Vos et al. 2016). The last stage which does not need elaborate discussion is
contract discussion where a formal contract is formed between the supplier and the business
holder and thereby limiting the companies’ exposure.
Importance of Sourcing in modern purchasing

6
GLOBAL PROCUREMENT
Cost management
Strategic Sourcing is highly beneficial for buyers as well as suppliers. The buyers can benefit
because they have the power of negotiating lower prices against high volume purchase thereby
diminishing the cost of the goods sold and maintaining the capability to price their products at a
competitive rate. Organisations also use strategic Sourcing for procurement of services. For
evidence, startup technology companies, to outsource activities will help the higher management
to emphasize on the primary activities like product development as well as marketing (Gleich,
Schmeisser and Zschoche 2017).
Supply stability
Strategic Sourcing can help in the development of stable partnership of suppliers. The restaurants
heavily rely on their suppliers for the primary ingredients like meat and other Producers and
hence any disruption in the quality or quantity of the product supplied can directly impact their
capability of serving the customers. This is why modern purchase try to maintain close
relationships which also lead towards improvement in the quality of products provided by the
suppliers over time because the suppliers and customers working together gradually comes to
bring about a major in defect rates and identify the defects. Hence strategic Sourcing might work
towards supplier consolidation for the purchase (Johansson et al. 2017). Hence strategic Sourcing
might work towards supplier consolidation for the purchaser. Counselling date all of their
clothing purchase from one supplied rather than going for various suppliers pertaining to various
brands. This can help in streamlining the procurement process as well as saving costs.
Role played by low cost country Sourcing

7
GLOBAL PROCUREMENT
Sourcing the business requirements of a company to profitable foreign marketplaces is a business
proceed your that has grown quite popular in the last 30 to 40 years. As observed by Stanczyk et
al. (2017), maximum number of Western companies are exploring for low cost country Sourcing
opportunities. Almost all the Sourcing Agencies are coming across their previous the unexplored
marketplaces that might provide them with additional benefits. Searching for feasible raw
materials, labour as well as manufacturing facilities is a continuous hunt that is almost always
profiting the organisations over a better Note each time (Subramanian, Rahman and
Abdulrahman 2015).
Promising opportunities provided by alternative marketplaces
Europe, Africa as well as east have provided variety of options for the companies in the west.
Donations like Poland, South Africa, and others are opening themselves for foreign Investments.
These are suggestive LCCC market Sourcing options. Specifically, the organisations are trying to
find out markets that have similar business as well as trade practices and policies. That is why
most of the new market opening up with the hands of the companies from Western Europe as
well as USA. In this regard Hoekstra, Michel and Suh (2016), Identify that the cultural,
geographical linguistic barriers and having less impact on the business and providing the
Sourcing Agencies new avenues for maximization of the outcome from their clients including
provision of promising alternative marketplaces and suppliers.
New Strategies for overcoming foreign country procurement challenges
There are several hurdles faced by the Sourcing Agencies because of procurement of products
from the foreign countries. However this have now been surpassed with several intelligent
solutions. The emergence of cloud technology is helping the organisation to be in touch with the

8
GLOBAL PROCUREMENT
Sourcing managers all the time. Inventory monitoring has also become easy and there by the
Sourcing Agencies are always able to get data regarding sources as well as supply chain statistics
that enhances the possibility of improving faster decision making regarding Sourcing and
procurement. On top of that, inclusion of real time data sources as well as implementation of
analytics software is helping the Sourcing managers to facilitate advanced risk management
strategies.
Summarization of the primary advantages of LCCS
The first biggest advantage is abundance of cheaper labours. Getting hold of cheap labours can
be fired problematic in the western countries as labour cost is high and stable all across the
market. On the contrary Nordigarden, Rehme and Chicksand (2015), observes that in emerging
markets the labour cost are much lower and this is why Sourcing options like south east asia,
Middle East, specific regions of Europe have become very popular the popular brands can get
labours at attractive prices. The second advantage is availability of affordable raw materials in
the foreign markets which can be acquired at much lower rates compared to the native Western
countries (Baldassarre and Campo 2015). Outcome of the production cost also becomes lower in
the market places and the bargaining power of the companies over the suppliers in the home
countries as well as the customers becomes higher.
The third advantage is less energy as well as infrastructure spending because these factors need
not be taken into consideration while Outsourcing the document. Thus Sourcing requirements to
liquid different places help organisations to avoid the payment of premium Tariff.
Challenges associated with low cost country Sourcing

9
GLOBAL PROCUREMENT
The manufacturing jobs are living China in droves now and instead new low cost Sourcing
countries are identified by the procuring companies. Recently Myanmar, Cambodia as well as
Ethiopia have been identified as the major Sourcing countries for the Global retail Agencies and
the most amazing fact, as noticed by Antras, Fort and Tintelnot (2017), is that even in the year
2017 these countries were not in the leader of the Global organisations. However, sourcing from
these countries for Sourcing in retail as well as private label manufacturing comes in with
auxiliary issues. There are five current challenges that the procuring companies are now facing
and these are unskilled labour, lack of infrastructure for logistics, cultural differences, lack in the
quality in the local raw materials as well as technological disruption. Almost 50% of the
premium brands perceive that lack of quality in the local raw materials is a big challenge
whereas in the overall survey it is revealed by Berg, Hedrich and Russo (2015), that about 30%
of the organisations think that it is a minimal challenge. On the contrary Giunipero et al. (2018),
thinks that the biggest challenge in this case is the unskilled labour and technological disruption.
However almost all researchers have unanimously confirm that these differences and
disturbances actually bring about a lot of disruption in the cost and benefit structure and as such
the organizations are not able to objectify the procurement from the low cost countries.
It is evident that retail joins are finding it difficult in Sourcing from low cost countries, where as
the heavy manufacturing and apparel production and marketing companies are finding it rather
beneficial to source from the low cost countries.
Part B
Discussion on a company that has been using low cost country Sourcing for significant time
period

10
GLOBAL PROCUREMENT
In thus section the researcher is going to talk about the apparel retail brand Inditex who has been
Sourcing their products as well as raw materials on many instances from the low cost Sourcing
countries for many years. Inditex has not been directly involved with agents operating in the low
cost Sourcing countries. That have their suppliers position in 43 different countries for Sourcing
maximum value of their products and as such 57% of the factories to produce apparel for the
company are situated outside their headquarters in Arteixo (Carter et al. 2008). Organisation has
their Sourcing countries in the form of Spain, Portugal as well as Morocco.
As referred to buy the spokesperson of the company, procuring from the low cost countries is a
complex as well as difficult process however the organisation tries to keep the process as well as
principal of Sourcing clear.
Inditex has developed their fame as one of the most environmentally responsible organisation.
Responsible organisation therefore they are always trying to develop sustainable ways for
Sourcing raw materials and apply cleaner and more efficient means of turning raw materials into
garments. This image of cleaner production has actually help in fostering their business in many
of the new and emerging foreign markets. They have been able to achieve this benefit by
supporting the sustainable cotton production movement and procuring original wood based fibres
which are never source from any primary or any of the high court logically relevant forests.
Nevertheless, because of their clean image the local suppliers are interested in developing
sustainable business relationship with the organisation and easily offer services and raw
materials at the basic rate. As referred to in the literature review section, this organization has
also been able to develop a sustainable business relation with the suppliers in the low cost
countries.

11
GLOBAL PROCUREMENT
The organisational policy shows that all the suppliers who develops sustainable contract with the
organisation and list their name among the most potential procurement partners of the
organisation need to follow their code of ethics and conduct. On one hand we observe that
procuring from low cost countries has been an advantage to business since it helps in cost cutting
which allows them to bring down the production cost and develop competitive advantage over
barginers in the market (Carter et al. 2008). On another hand many big corporations have come
under ethical charges by Sourcing their products from low cost Sourcing countries. The reasons
being that on most of the instances the minimum wages they have provided to the labours or the
locally sourced raw materials that they have used in their products have been much listen in
comparison of standard and quality, respectively, as compared to that they have been providing
as well as utilising in their home country.
As highlighted by Boselie, Henson and Weatherspoon (2003), Section of the customers is of the
perception that since organisations are Sourcing their products at much lower prices, there should
be categorisation in the product line also.
Along with environmental sustainability, also ensure that the suppliers in which they are
developing sustainable business relations will be accountable for their long-term profitability in
the future. With this ideology in mind, organization conducts an average of 2000 pre-assessment
audits in all major Sourcing regions in a time span of 5 financial years. The digital branding and
marketing team of the organisation conducts and average of 5500 social audit in three years over
social media and other digital platforms in order to ensure that ethical standards of all popular
agencies of the countries from where their Sourcing their products are globally accepted and
recognized. The organization also have a policy of conducting 2000 special audits on account of
which they are able to understand the market acceptability of the specific suppliers for the low

12
GLOBAL PROCUREMENT
cost supplying domains that we are utilising for their business. Lastly the organisation also
conducts over 2,000 audits every year in order to ensure the traceability of the sources that the
suppliers are utilizing (Stanczyk et al. 2018). This implies that all the organisation is making the
supplies to follow their code of conduct, they need to have additional policies to ensure that the
suppliers are not Outsourcing their work to other agents for following unfair means like paying
less than minimum wages to the workers for Sourcing the products from some source that is
hampering the ecology or the environment.
Creating value for customers
The biggest advantage for the organisation is that since they are able to source their products at
competitive prices, maintaining the quality and standard of materials also, they are able to follow
their ideology of providing High Street fashion products to the customers of all categories at
reasonable prices. This is one of the major reasons why they have been able to maintain their
level of competitiveness with the emerging E-Commerce industry.
Conclusion
In conclusion it can be stated that Sourcing from low cost countries have various dimensions and
respective propositions of value for different companies. There are several countries why
production cost is very low. On the contrary there other countries where production cost is
slightly on the lower side, but the quality of raw materials of the technology is not it developed
up to the limit by means of weight the local suppliers can provide products to the procurers in
desired quantities. Nevertheless, it becomes beneficial when companies like Inditex source their
products from multiple sources. For evidence the supplier network of the organisation is trade
among 43 countries. In this context the above-mentioned challenge is faced by the organisation,

13
GLOBAL PROCUREMENT
however the rigid policy Framework maintained by them helps them to ensure the cost
effectiveness as well as the quality of their products.

14
GLOBAL PROCUREMENT
Reference List
Antras, P., Fort, T.C. and Tintelnot, F., 2017. The margins of global sourcing: Theory and
evidence from us firms. American Economic Review, 107(9), pp.2514-64.
Baldassarre, F. and Campo, R., 2015. Assessing the Global Dimension of Sourcing: An
Exploratory Study on Italian Companies. International Journal of Supply Chain Management,
4(3), pp.15-24.
Berg, A., Hedrich, S. and Russo, B., 2015. East Africa: The next hub for apparel sourcing.
McKinsey & Company.
Boselie, D., Henson, S. and Weatherspoon, D., 2003. Supermarket procurement practices in
developing countries: Redefining the roles of the public and private sectors. American journal of
agricultural economics, 85(5), pp.1155-1161.
Carter, J.R., Maltz, A., Yan, T. and Maltz, E., 2008. How procurement managers view low cost
countries and geographies: a perceptual mapping approach. International Journal of Physical
Distribution & Logistics Management, 38(3), pp.224-243.
Giunipero, L.C., Bittner, S., Shanks, I. and Cho, M.H., 2018. Analyzing the sourcing literature:
Over two decades of research. Journal of Purchasing and Supply Management.
Gleich, W., Schmeisser, B. and Zschoche, M., 2017. The influence of competition on
international sourcing strategies in the service sector. International Business Review, 26(2),
pp.279-287.

15
GLOBAL PROCUREMENT
Hoekstra, R., Michel, B. and Suh, S., 2016. The emission cost of international sourcing: using
structural decomposition analysis to calculate the contribution of international sourcing to CO2-
emission growth. Economic Systems Research, 28(2), pp.151-167.
Johansson, B., Hallén, O., Persson, A. and Tarland, R., 2017. Sourcing Trends Predictions–An
Analysis of Regions and Strategies. Procedia computer science, 121, pp.716-723.
Lorentz, H., Töyli, J., Solakivi, T. and Ojala, L., 2015. The effect of low-cost country sourcing
on supply chain administration cost. International Journal of Logistics Research and
Applications, 18(1), pp.1-15.
McAfee, R.P. and McMillan, J., 1989. Government procurement and international trade. Journal
of international economics, 26(3-4), pp.291-308.
Nordigarden, D., Rehme, J. and Chicksand, D., 2015. Sourcing uncertainties: The case of
outsourcing and global sourcing. Modern Manag
Stanczyk, A., Cataldo, Z., Blome, C. and Busse, C., 2017. The dark side of global sourcing: a
systematic literature review and research agenda. International Journal of Physical Distribution
& Logistics Management, 47(1), pp.41-67.
Subramanian, N., Rahman, S. and Abdulrahman, M.D., 2015. Sourcing complexity in the
Chinese manufacturing sector: An assessment of intangible factors and contractual relationship
strategies. International Journal of Production Economics, 166, pp.269-284.
Vos, F.G., Scheffler, P., Schiele, H. and Horn, P., 2016. Does global sourcing pay-off? A
competitive dynamics perspective. Journal of purchasing and supply management, 22(4), pp.338-
350.

16
GLOBAL PROCUREMENT