Global vs. local: Sourcing decisions for european retailers of household items

Abstract

While the price and costs of sourcing from Asia are lower, European buyers are sometimes still more willing to source goods locally. Is it because of the ease, because of the uncertainty or due to the lack of information? In any case, this statement introduces other elements than the pure countable elements like prices and costs in the sourcing decision. The purpose of this study is to provide first a better understanding of the process of the buying decision and the factors that may have an impact on this decision. Secondly, it aims at highlighting the potential concerns and barriers the buyers have during the purchase and especially when they need to source from Asia. Getting to know the concerns and barriers enables to think of ways to overcome these challenges and give recommendations for the global sourcing decision. To do so, we conducted a qualitative analysis based on both, primary and secondary research. We first went through the literature in order to get a broad picture of the buying environment, the process of the buying decision, the theories and the case studies related to the buying situations. We crossed our findings with interviews and discussions with the buyers, with people from sourcing offices and other positions related to the purchasing department or logistics. We found out that we can divide the process of the buying decision into 5 stages. The need identification & the product specification, is done consciously or not by the buyer before starting to search for alternatives. Then, when the buyer has different options, he/she would have to compare the benefits and alternative offers from a cost or other perspectives and decide on his/her best option. Next we decided to include the manufacturing and transportation in the process because it may have a high impact on the buyer’s performances. At the end of the process, the buyer evaluates the performances of his purchase. It is essential to consider this process as non-linear and buyers may need to go one stage back in order to progress in the process (e.g. if the buyer can’t find any supplier for their need, they would need to think again the product specifications in order to have at least one supplier). During all the process, buyers are influenced by environmental elements such as the strategy of the company or current economic or political landscape. Based on the literature and our interviews, we identified fifteen influencing factors of the buying decision: the ability, the continuity, the culture, the effort of buying, the flexibility/agility of the supplier, the logistics, the margin, the price, the quality, the reliability, the supplier management, the tariffs & regulations, the time to market, the total landed costs and the uniqueness of the product, have an impact on the buyers when they need to decide whether to source from Europe or from Asia. Each of these factors comes with different challenges for the buyers and needs specific recommendations. We combined all the recommendations, associated with their factor and a short statement of the buying situation in a tool, that will serve as a guideline in order to help the sourcing decision. Following the recommendations will help to solve the concerns related to each factor. This tool may be used as it is, or may be combined with a profiling exercise. In order to provide a solution as tailored as possible for each buyer, we developed a way of getting to know the profile of a buyer, comparing the importance each of the fifteen factors has from his/her perspective to the objective importance determined by the strategy of the company. Comparing the two perspectives enables to weight by importance each of the factors and to exactly know the most important factor for a specific buyer in a specific organization. The objective weight may change from a product category to another and it may require to determine it with an experienced professional, who has a good knowledge and unbiased opinion. The aim of this profiling is to keep focus on the key factors and avoid to waste time on concerns with factors of low importance. At the same time the buyer is also guided so that his decision is in line with the company’s strategy