When you start a business, one of the foremost questions you would want to have a definite answer to is whether you want to use locally available materials or get the from elsewhere. You can source raw materials from your own place, the next state or the adjacent continent. The world is after all, a global village.
A very important factor in choosing your sourcing options is to consider the price difference and quality difference between local and exotic materials. Furthermore, imported goods are subject to the regulatory requirements of the Government. And the regulatory requirements pertaining to the import procedures vary depending on the item of import. So, consult with the appropriate people whether what you intend to do is legal and valid.
Cost and benefit analysis:
Before you get into it, you should do a careful cost and benefit analysis on the process of placing the orders to minimize the production costs and hence increasing the profit margins. It is not just raw material that you need to decide sourcing from. Technology, support, infrastructure, manpower- these are the other arenas that can be sourced from anywhere, depending on what you need.
If your raw materials are locally available, you cut transport costs. You have better access to the supplier and it is a benefit that you and the supplier fall under the same legal jurisdiction. This is important in case legal disputes flare up at a later date. Get quotations from several suppliers. Try to have a combined view of quality and price. But if you think local suppliers do not meet your requirements, feel free to experiment with others.
You also need to check whether the supplier can keep up with your demands. Is his business sustainable? Does he have to scale up to meet your demands? If yes, does he have the resources to scale up? Proper planning is very essential here because non-availability of the required raw material may result in production hold-ups, idle machinery and manpower. That means loss of revenue, end of day.
Overseas suppliers:
If you decide to source from overseas, you can ask for the supplier’s reference in local markets. You can also look into the supplier’s units in person, if you can afford to do it. International trade fairs and engineering fairs are good places to look at available options for overseas suppliers. While considering this option, you need to factor price, currency fluctuations, travel and shipping laws, shipping relationship between the two countries among other things. Cost of shipping is exorbitant between countries. And adjust for inflation; think long term when it comes to setting up ties with suppliers. Talk to lawyers and make sure your contracts are foolproof. Make sure the supplier is who he claims to be and that he has necessary permits and license to liaise with you. Furthermore, overseas specifications on quality can follow different standards. Decode all that, invest in interpreters and translators to understand the minutest details.
