Influences on Sourcing, Procuring and Security of the Supply Chain

According to Investopedia (2014) The supply chain is the network created amongst
different companies producing, handling and/or distributing a specific product. Specifically, the
supply chain encompasses the steps it takes to get a good or service from the supplier to the
customer. Supply chain management is a crucial process for many companies, and many
companies strive to have the most optimized supply chain because it usually translates to lower
costs for the company. Quite often, many people confuse the term logistics with supply chain. In
general, logistics refers to the distribution process within the company whereas the supply chain
includes multiple companies such as suppliers, manufacturers, and the retailers. Supply chains
include every company that comes into contact with a particular product. For example, the
supply chain for most products will encompass all the companies manufacturing parts for the
product, assembling it, delivering it and selling it.
A regional trading bloc is a group of countries within a geographical region that protect
themselves from imports from non-members. Trading blocs are a form of economic integration,
and increasingly shape the pattern of world trade. There are several types of trading blocs:
SAARC, OPEC, ASEAN, EU etc. Trading blocs helps in elimination of tariff, and non-tariff
barriers and facilitates free transfer of resources across the border of member countries. Free
transfer of resources helps in increasing the productivity of member nations. They eliminate
trade barriers and encourage free trade. This will increase import and export activities of member
nations, which results into increase in trade revenues. Trading blocs are sound and efficient to
create sustainable economic growth. Trading blocs are created to encourage trading partners to
buy and sell goods already made in their home countries; therefore this would influence
procurement (Kumar, 2012).

Influences on Sourcing, Procuring and Security of the Supply Chain

According to Merriam-Webster Dictionaries (2014) international trade agreement is any

contractual arrangement between states concerning their trade relations. Trade agreements may
be bilateral or multilateral, that is, between two states or more than two. For most countries
international trade is regulated by unilateral barriers, including tariffs, nontariff barriers, and
government prohibitions. Trade agreements aim to reduce such barriers and thus provide all
parties with the benefits of increased trade.
According to Essays, UK (November 2013) Global supply chains carry unique risks
including variability and doubt in currency exchange rates, economic and political instability,
tariffs and duties changeability, non-tariff trade barriers, individual income tax, etc. Although
macroeconomics uncertainties arise in the national setting, in the international context, the
problem is magnified as the company deals with a number of national macroeconomics settings.
Since then, risk management has to be seen as an essential part of global Supply chain
management, where practitioners should factor these risks into their decisions when dealing with
global supply chains. For example, currency exchange rate affects the price of goods purchased
in the suppliers currency, and so influences the financial performance of the supply chain.
According to Ireton (2009) Governmental regulations can enhance or detract from the
ease of doing business with a given origin. For years there were quota restrictions with importing
textile goods from China. This restriction was removed in January 2005, leaving China trending
toward sourcing up to 50 percent of the world market share of textiles. Before any sourcing
decision is made, it is imperative that all trade incentives or restrictions are evaluated carefully. It
is also essential to be familiar with documentation requirements for U.S. customs clearance.
There are many government-sponsored publications, brokers or consulting organizations
available to help educate an importer in the legal requirements of international trade.

Influences on Sourcing, Procuring and Security of the Supply Chain

Time to market is becoming an increasingly critical factor in sourcing decisions. If ones

competitor has product available more quickly, the result could be lost market share and more
important, lost revenue. It is important that your supplier be receptive to, and able to
accommodate, change. Perhaps the product needs to be tweaked slightly, or sales are exceeding
expectations and production needs to be ramped up. Is the supplier in a position to do this? If the
industry is subject to whims (think fashions for teenage girls, for example), sourcing in Latin
America may make sense with its proximity to the end market and quicker transport time.
At the risk of sounding like a real-estate agent, consider location, location, location. The
proximity of a country may make it a more attractive source case in point, Canada. Canada is
the United States largest trading partner. In the same vein, Mexico is the second-largest importer
of U.S. goods, and third as a source of imports to the U.S. behind only Canada and China. The
proximity leads to benefits such as doing business in the same, or close, time zones. In addition,
common cultural differences and similarities, including language, are known, as many of the
populations in the three North American countries have their origins or families in the
neighboring countries. The North American Free Trade Agreement also has done a lot to ease
restrictions on trade between the countries.
The quality of the product has ramifications over and above the unit cost on the balance
sheet. Quality needs to be defined so that the supplier and buyer understand and are in
agreement. If there are issues with the quality of the product, it is much harder to address with a
vendor through cultures, time zones and geographies, than if you are meeting with a local
supplier. Poor quality affects everything downstream, most obviously the rate of returns by dissatisfied customers. Returns drain the business, taking up resources that are more typically
focused on getting good product out to the market, not receiving bad product back in. Defective

Influences on Sourcing, Procuring and Security of the Supply Chain

product may need to be sold at a discount or written off as a loss, each of which affects the
bottom line. A key part of an efficient supply chain is having quality product all the way through
it. In some cases, it may involve trial and error, but as relationships grow over the years, some
suppliers stand out as offering a consistently superior product. These are the relationships to
nurture.
All the great products and quality will mean nothing if you are unable to get the goods to
market. What type of transportation is available, domestically and internationally? After all, you
have to get the goods to an airport or seaport for transport; is there a reliable transportation
infrastructure in the country? Are you relying on a well-fed yak to negotiate a tricky mountain
pass to get to a major port, or is there a sound transportation infrastructure from the
sourcing/manufacturing origin point to the port? Once the freight is ready for international
transport, is there space or lift available? Seasonal fluctuations and weather should be taken into
consideration. Recent hurricanes along the Gulf Coast are a great example: Katrina has affected
the logistics of industry and business far beyond the immediate region. It is important to have the
flexibility with service providers to implement alternate plans quickly in case the primary plan or
transportation lane becomes unavailable.
When procuring it is easy to focus on the lowest unit cost and assume thats the best way
to go. But unit cost is just one piece of the total cost equation. Other factors include
transportation, customs and duties, brokerage services (both at origin and destination), banking
fees, financing and insurance, to name a few. Further, there could be additional, unexpected
costs. If customs decides to examine the freight, you should add in charges for the examination
and local coordination charges. What if fumigation is required? More charges. Any delays in the

Influences on Sourcing, Procuring and Security of the Supply Chain

supply chain could result in expedited freight charges in order to meet the target delivery date.
While these may not occur, it is best to plan for the worst, and hope for the best.
Any discussion of buying and selling would be incomplete without evaluating the
financial aspect, in addition to looking at the actual cost of goods. What terms can be negotiated?
What is the risk with a given manufacturer? Is more insurance required to source from a supplier
in Vietnam versus Hong Kong? Can your excellent credit terms with your domestic bank be
leveraged to benefit the suppliers financial picture, resulting in less risk and cost to the buyer?
How will the increased transport time resulting in tied-up inventory affect your cash-tocash cycle?
Hautecouverture (2012) states the Container Security Initiative (CSI) was launched in
January 2012 by the U.S. Customs and Border Protection Agency (CBP, which is affiliated to the
Department of Homeland Security) in order to reinforce the control measures to which
containers arriving in the United States by sea are subject. The fundamental principle is to
inspect any suspicious container that is bound for the United States in its port of origin before it
is loaded aboard. To this end, U.S. customs agents are permanently stationed in participating
foreign ports, where they have significant means at their disposal, including X-ray metal
detectors and radiation detectors. 58 ports located in 33 States currently participate in the CSI,
covering 85% of U.S.-bound container traffic.
According to The British Standards Institution (2013) C-TPAT is a US Customs and
Border Protection (CBP) voluntary joint government-business initiative to build cooperative
relationships that strengthen overall supply chain and border security. C-TPAT recognizes that
Customs can provide the highest level of security only through close cooperation with the
ultimate owners of the supply chain, importers, carriers, brokers, warehouse operators, and

Influences on Sourcing, Procuring and Security of the Supply Chain

manufacturers. This initiative asks that business work to ensure the integrity of their supply chain
processes and business partners, and successfully maintain open communication of their status.
The program is not limited to large importer/exporters as CBP recognizes that small and
medium-sized companies are integral parts of maintaining secure borders.
Therefore, it can be concluded that a number of factors/methods influence the procuring,
sourcing and security of the supply chain such as trading blocs and international trade agreement
in which only members to the trading bloc and trade agreement can source material from
member countries. Political and macroeconomic factor such as currency exchange rate affects the
price of goods purchased in the suppliers currency, and so influences the financial performance
of the supply chain. Governmental regulations can also enhance or detract from the ease of doing
business with a given origin such as the quota that was imposed on china for many years. Time
to market is an increasingly critical factor in sourcing decisions. If ones competitor has product
available more quickly, the result could be lost market share and more important, lost revenue.
Quality of the product is important because if products are returned this would take up resources
that could be focused elsewhere. Transportation and infrastructure of the suppliers country is
important because you would want to know if there will be any delays in receiving goods
because of bad roads or improper transportation. When sourcing products unit cost is just one
cost, you should make sure you consider transportation, customs and duties, brokerage services,
banking fees, financing and insurance, to name a few because this will affect the supply chain.
The Container Security Initiative is a security measure that was created to reinforce the control
measures to which containers arriving in the United States by sea are subject. C-TPAT is an
initiative used to build cooperative relationships that strengthen overall supply chain and border
security.

Influences on Sourcing, Procuring and Security of the Supply Chain

References
Investopedia. (2014). Definition of Supply Chain. Retrieved from:
http://www.investopedia.com/terms/s/supplychain.asp
Essays, UK. (November 2013). Global Supply Chain Management Business Essay. Retrieved
from:http://www.ukessays.com/essays/business/global-supply-chain-managementbusiness-essay.php?cref=1
Kumar,B. (2012). The Role and Importance of Trading Blocs (8 Points) | Business. Retyreived
from:

http://www.preservearticles.com/2013082933394/the-role-and-importance-of-

trading-blocs-8-points-business.html
Ireton,S. (2009). 10 Factors to Consider When Sourcing Globally. Retrieved from:
http://www.joc.com/content/10-factors-consider-when-sourcing-globally
The British Standards Institution. (2013). Supply Chain Security Solutions. Retrieved from:
http://www.supplychainsecurity.com/gov_ctpat.html
Hautecouverture,

B.

(2012).

The

Container

Security

Initiative.

Retrieved

from:

http://www.cesim.fr/observatoire/eng/83/article/165
Merriam-Webster Dictionaries. (2014). trade agreement. Retreived from: http://www.merriamwebster.com/dictionary/trade%20agreement