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Purchasing in the International Marketplace: Implications for Operations

Purchasing in the International Marketplace: Implications for Operations Internationalization of the marketplace, global competition, and changes in the business environment have contributed to the increase in international purchasing. U.S. firms, recognizing these trends, are entering the international arena in increasing numbers. Simply stated, domestic suppliers alone cannot meet all the competitive needs of a multinational corporation. As a result, international sourcing has emerged as a critical component of corporate strategy, aimed at reducing costs, raising product quality, increasing manufacturing flexibility, and improving designs. This article discusses the strategic importance of international purchasing, describes procedural and managerial issues of concern in international procurement, and delineates the significant differences between buying from foreign and domestic sources. The importance of the linkage between the purchasing function and the other functions within a firm is becoming more evident with each passing year.[1] Firms are becoming acutely aware that purchasing decisions impact many cross-functional decisions, such as capacity requirements and equipment needs (make-versus-buy decisions), product cost(*) and quality performance, (source selection and qualification decisions), delivery reliability (mode and carrier decisions), and product innovation (supplier partnering decisions). This awareness has been generated by the strategic emphasis placed on product quality, cost competitiveness, and the just-in-time[2] approach to manufacturing and delivery. U.S. firms, recognizing these trends, are entering the arena of international purchasing in increasing numbers. Simply stated, domestic suppliers cannot meet all the competitive needs of a multinational corporation. As a result, international sourcing has emerged as a critical component of corporate strategy, aimed at reducing costs, increasing product quality, increasing manufacturing flexibility, and improving product designs.[3] This article, based largely on extensive field interviews, discusses the strategic importance of international purchasing, describes procedural and managerial issues of concern in international procurement, and delineates the differences between buying from foreign and buying from domestic sources. A CHANGING BUSINESS ENVIRONMENT There are several reasons for the emergence of international purchasing as a strategic weapon in the restructuring of manufacturing operations in U.S. firms. Most of these reasons are related directly to the efforts of U.S. manufacturing firms to gain, or regain, competitive strength and market share by improving their strategic posture in response to a changing business environment. The principal changes in the environment that underlie the move by manufacturing firms to develop new corporate strategies are summarized in Table I. TABLE I A CHANGING BUSINESS ENVIRONMENT New Challenges to Corporate America * Intense international competition * Pressure to reduce costs * Need for manufacturing flexibility * Shorter product development cycles * Stringent quality standards * Ever-changing technology Competition Intense competition from abroad, pressures stemming from the need to reduce trade deficits through exports, and the interdependence of global economies have all served to internationalize the marketplace. Surviving and thriving in today's global markets require that manufacturing firms be truly "world class." There is evidence that the United States no longer enjoys an unequaled advantage in manufacturing and in manufactured goods. Steel, semiconductor, automobile, and consumer electronics industries all have fallen victim to international competition and have seen their market shares erode. Cost Reduction Most manufacturing firms are striving to be low cost, high quality producers. …