Sourcing internationally: Six risks, and how to mitigate them

Many companies buy product packaging from suppliers overseas. There are many benefits to doing so, but there also are risks, notes Adam Brosch, director of global sourcing and custom tooling for Berlin Packaging, a provider of packaging products and services. In an interview, Brosch identified six major risks and some ways to mitigate them—good advice for buyers of any product, not just packaging.

1. Time differences. When your supplier is on the other side of the world—which means they're sleeping while you're at work, and vice versa—you can lose precious days waiting for answers to questions. One solution is to have "feet on the street": an in-country representative or employee who can anticipate questions and ensure that communications with suppliers include all of the necessary details from the start.

2. Language barriers. Suppliers may not be fluent in your language, and they may not be comfortable asking for explanations multiple times, says Brosch, who has worked in China. To prevent misunderstandings, follow up discussions with written confirmation of what was agreed. For some communications, Berlin uses templates, so information is always presented in a consistent way. Brosch also suggests having important documents professionally translated, and then sending suppliers both the original and the translation.

3. Quality expectations. If you rely solely on overseas suppliers to determine that quality standards have been met, you won't know about any problems until after orders arrive. One way to prevent that is to conduct quality inspections before the packaging leaves the country of origin. Another is to train suppliers in how to comply with your quality standards—for example, by teaching them the quality-control methodology you want them to use, and by holding them accountable for following it.

4. Compliance issues. Suppliers' failure to comply with social responsibility, quality, environmental, and safety standards can be detrimental to your company's relationships with customers. Make sure suppliers understand both the standards and your expectations, and give them a reasonable period to come into compliance. Regular audits of major suppliers are a must; in some cases it may be worth hiring a neutral auditor to verify that proper practices are being followed.

5. Production scheduling. When an order is late, you may have to pay a penalty to your customer or ship by air instead of by ocean. Understanding lead times—not just for finished product but also for critical components and raw materials—can help you anticipate and avoid costly delays. To prevent shortages, Berlin sometimes pre-buys packaging that incorporates raw materials with long lead times, Brosch says. He also suggests identifying alternatives like paying for overtime and working with a backup supplier that could alleviate bottlenecks.

6. Logistics. Things can and do go wrong between the time a shipment leaves a factory and when it arrives at destination. Make sure your supplier has a Plan B in case of loss, delay, or damage, and that everybody understands the Incoterms terms of sale that govern each party's responsibilities. Having a good logistics partner that offers a number of service options is helpful, too. Brosch also urges earning security certifications from customs authorities at origin and destination to reduce the likelihood of time-consuming cargo inspections.