How Global Sourcing Service Can Cut Your Expenditure?

By http://www.dragonsourcing.com/

How Global Sourcing Service Can Give You Benefits of Economies of Scale?

Introduction:

The concept of local procurement has been replaced by global sourcing. Producers of goods and services no longer depend on local supplies for sustenance. Instead they venture out to the entire world and look for production factors that are of international quality and affordably priced. With easing of tariff rules and opening up of several international trade routes, manufacturers always search Global Sourcing Service for procurement.

Economies of scale

To earn the benefits of economies of scale it is necessary to use available resources to their optimum level. Resources: capital, labour, land, raw materials, and technology need to be utilized to their optimum extent for yielding returns that justify their usage. To achieve this, size of market must commensurate to level of production of goods or service. For example for a multinational corporation that has manufacturing facilities across the globe, it is imperative that they cater to a worldwide market. Similarly, for a small scale unit, market spread over a state or even a locality could yield them economies of scale

Globalisation

Globalisation is aimed at benefitting medium and large scale companies that engage in international trade. It gives them the scope of catering to a larger market. If market size determines the revenue for a producer then cost is determined by the source of production factors. Globalization has not only expanded size of market but also created more opportunities on the supply side. Producers instead of relying on local sources for their factors depend on a global source.

Factor costs

The reasons for depending on such a source are essentially economic. For any manufacturing facility costing is a determining factor for fixing the price of output. Cost includes price of raw materials, wage or salaries of employees, rent of land, interest on capital, and profit towards entrepreneurship. This profit factor is normal and is treated as a cost component. Profit earned beyond this is termed super normal profit. In a competitive situation manufactures cannot afford to sell products or services keeping super normal profits for themselves. In such situations the only way to increase profit margin is to lower costs.

In an effort to lower costs, producers of goods and services remain in the lookout for factor products that are priced less without compromising on their quality.

For this purpose their search goes beyond local areas and spreads over to overseas countries. Another important factor while locating these sources is their distance from their manufacturing spot.

It is always justifiable to source raw materials from the nearest source as that would keep carrying cost within manageable limits. However, strict control on quality needs to be maintained as the target market is worldwide. A Global Sourcing Service gives this flexibility of procuring high quality materials at affordable rates.

Contact Us