Chapter 10:
Global Sourcing
Purchasing and Supply Chain Management
3rd edition
Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Purchasing and Supply Chain Management, 3rd edition, Copyright 2013, W.
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Current Trends
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Significant increases in global purchases
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Many firms rely on global sourcing to remain competitive and
survive
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Common emphasis on outsourcing of whitecollar jobs
Issues related to global sourcing:
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Costs
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Currency exchange rates
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Behavioral issues
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Costs of Global Sourcing
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Cost categories:
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Administrative
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Costs not directly involved with the product
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Foreign
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Costs not incurred if a domestic source were found
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e.g., identification, qualification, program development, travel, broker
fees, and others
e.g., duty charges, customs fees, import fees, and currency exchange
costs, etc.
Common
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Costs common to both global and domestic sourcing
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e.g., direct labor and materials costs, leadtime costs, transportation
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Currency Exchange Rates
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Depending on the length of the contract
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Foreign purchase cost may change
Payment Options
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In foreign currency
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Strong dollar: Lower cost of goods
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Weak dollar: Higher cost of goods
In U.S. currency
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Less risk
Risksharing contract
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Strategic Considerations of Global Sourcing
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The advantages of sourcing offshore must be weighed
against the associated risk
Global sourcing viewpoints:
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Quantitative
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Exchange rate uncertainties
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Direct costs of importation
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Indirect importation costs
Qualitative
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National interests
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
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Ethical consequences of “sweat shop” labor
Offshore Sourcing Analysis
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There is a tendency to overestimate the cost savings
from global sourcing.
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Determination of accurate freight and duty costs
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Consider the impact of the following issues:
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Distance
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Communication
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Time value of money
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Quality issues
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Pipeline inventory problems
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Freight and Duty Costs Estimation Example
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Global Provider Opportunism
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Forms of provider opportunism that can play a value
destroying role in global outsourcing relationships:
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Shirking
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The extent to which the service provider is inclined to deliberately
underperform or withhold resources
Poaching
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The extent to which the service provider is inclined to utilize
information gained through its relationship with the customer for its
own benefit
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Power and Global
Sourcing Risks
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Increased risk of outsourcing provider shirking
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Buyer relationship–specific investments
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Mediated power
Decreased risk of outsourcing provider shirking
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Provider relationship–specific investments
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Not poaching
Nonmediated power
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Countertrade
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The exchange of goods for goods in full or partial
payment of a sales transaction
Popular forms of countertrade:
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Offset
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Indirect offset
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Coproduction
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Licensed production
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Subcontractor production
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Technology transfer
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Barter
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
Questions?
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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.