International retailers are driving the trend, while others are less convinced of its potential. A survey of 50 suppliers in the IGD's latest report, Future Focus: The Future of Global Sourcing, found that a third had no clear view on whether it was a positive development. Half agreed their company was devoting more resources to global sourcing. Only slightly fewer had a dedicated team to deal with retailers globally. Says IGD's senior business analyst Nick Downing: "It illustrates the limited impact that global sourcing has had so far, with most respondents adopting a wait and see' approach. While some fear that global sourcing will increase retailer bargaining power to the detriment of their business, others acknowledge the possibility of creating a genuine win-win' situation." Wal-Mart was named by 72% of the suppliers as a retailer which was driving global sourcing and setting industry best practice with its Retail Link system, while most thought P&G and Unilever were the main manufacturers driving the trend. Downing adds: "Although retailers have been the key drivers, suppliers have the brands and reach to make global sourcing a reality." In the last few years, global sourcing has been driven by declining trade barriers, increasing price transparency and advances in technology, along with supplier consolidation, brand rationalisation and the advent of global branding. But retail globalisation is the main driver as chains source to secure supplies in new markets, achieve greater consistency, exploit supply chain efficiencies and demand the price discounts warranted by volume buying. The euro has also prompted more global action and one of the most important implications going forward will be increased price transparency. The IGD reckons that, as a result, retailers will look for ways to source the same products at a lower cost from new suppliers, while some will push for pan-European and global deals. This will be repeated by manufacturers further down the supply chain. Supplier consolidation has come as a result of mergers and acquisitions, while larger players have been forced to focus their resources on fewer brands ­ dumping those with limited global appeal. Retailer expansion has driven global sourcing as when chains enter a new market, retailers can lack knowledge of local suppliers or local supply may be unreliable or unavailable. By sourcing globally, retailers can also achieve lower unit costs by buying large volumes and build a more efficient supply chain by renegotiating freight contracts and consolidating stock movements in countries where they have weak bargaining power. Retailers like Wal-Mart use it to ensure that products and brands are consistent between markets. Global sourcing can also eliminate or reduce unnecessary handling and transaction costs. B2B exchanges, buying alliances and in-house retailer systems all currently allow retailers to source globally ­ matching them with the right supplier, increasing supplier-retailer collaboration, and, in the process, consolidating the supply chain. According to the survey, 55% of suppliers have used B2B exchanges, while just over 30% have dealt with in-house retailer teams, and 24% have used a buying alliance. Buying alliances are the most established method of sourcing globally and there are two major European groups ­ AMS (Associated Marketing Services) and EMD (European Marketing Distribution). EMD acts as a purchasing and marketing organisation for the independent grocery trade and has access to 100,000 stores, while AMS is the second largest European buying alliance and boasts Ahold as a member.Both provide joint purchasing, private label and promotions, among other services. However, fresh food is outside their remit. Despite Ahold's commitment, only a handful of leading retailers are members and the alliances are viewed as taking a practical, cautious and down-to-earth approach. Many retailers left alliances in the rush to join B2B exchanges or have become powerful enough not to need them, such as Wal-Mart. Interestingly, the IGD doesn't rule out a merger between a buying alliance and a B2B exchange in the future. B2B exchanges such as the WorldWide Retail Exchange and Transora are likely to remain a key feature of the global sourcing landscape as they're seen as cost-effective and good at exchanging information. But initial enthusiasm to join has died down, and they're not seen by some as the best way to manage well established, collaborative relationships with concerns over the negative impact of online auctions. But the IGD believes: "Provided they adapt to the changing environment, then exchanges will continue to play a key role and may prove to be especially important to smaller and medium sized players who do not or cannot deal directly with their trading partners." In-house global sourcing, meanwhile, is a more precisely tailored mechanism which allows for direct contact between supplier and retailer as long as they both have dedicated resources to manage the relationship. Retailers can develop technology to distribute offers for tender and pool bids across their supplier base, including running online auctions, but start-up costs are high, and the retailer has to do its own training. So far, the impact of global sourcing has been almost exclusively confined to international brands, although over the next five years the IGD predicts that there will be increased activity in private label, particularly if retailers look to fill the gaps left by brand rationalisation. Tesco, for example, is actively looking to exploit economies of scale and has developed a global sourcing system that lets it buy and track non food products. Meanwhile, whichever way they choose to source on a large scale, retailers are building increasingly sophisticated consumer relationships and extending their influence in the supply chain, which is becoming a key competitive tool. But despite this, there's a general trend away from confrontation towards collaboration and we're seeing set ups like Efficient Consumer Response and the Global Commerce Initiative which aims to facilitate and encourage the improvement in performance in the international supply chain'. Buying functions are changing, too, and the IGD believes that as the function gets increasingly centralised, employees will become either total supply chain experts who can analyse the whole supply chain to identify cost savings or customer specialist who can focus on the retail store and analyse market trends, merchandising and new products. Meanwhile, suppliers are creating global key account management teams to liaise with retailers' central buying departments. "This can only drive the trend away from confrontation to collaboration. Trading relationships will become more deeply rooted and based on long-term objectives not just short term measures such as volume and price," says Downing. Suppliers will continue to rationalise and consolidate both brands and manufacturing facilities. However deep-rooted local differences, notably in food, will drive the demand for local variations. On a general level, global branding will increase but the concept of one-size-fits-all global brands, with identical formulations, packaging and values, will be less obvious. It's thought that global sourcing will have the greatest impact on international brands and a more limited impact on national brands and fresh produce. Non food categories such as clothing and white goods are the most important, both now and in five years' time, but other categories such as health and beauty, drinks, household products and packaged groceries should follow. In terms of retailers, global sourcing is expected to have the greatest impact on the most global retailers, such as Carrefour, Ahold, Wal-Mart and Tesco, while some of the principles will be applied by smaller retailers. The IGD believes that global sourcing will continue to grow, but that it doesn't look set to replace other sourcing channels. It will simply create diversity and provide another level of demand aggregation. From the survey, consumer resistance to change was rated as the most important factor in the next five years, while manufacturer resistance and the lack of common standards are key factors now, but will prove less so in the future. Downing adds: "Managing such a transition is a major challenge for retailers and they will need a clear vision of how this change will be implemented and how it will affect the organisation as a whole. The company will also have to secure the buy-in of its employees, and equally importantly, its suppliers." n {{FEATURES }}