The subject of Chapter 10 is global sourcing. As firms’ competition heats up, firms will become more global minded. To be a global firm, management must be able to critically evaluate foreign markets. In the current business environment, firms are beginning to develop global procurement strategies.
Chapter10: GlobalSourcing PurchasingandSupplyChainManagement 3rdedition PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. PurchasingandSupplyChainManagement,3rdedition,Copyright2013,W. CurrentTrends Significant increases in global purchases • Many firms rely on global sourcing to remain competitive and survive • Common emphasis on outsourcing of whitecollar jobs Issues related to global sourcing: • Costs • Currencyexchangerates Behavioralissues PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. CostsofGlobalSourcing Costcategories: Administrative • Costs not directly involved with the product • • Foreign • Costs not incurred if a domestic source were found • • e.g., identification, qualification, program development, travel, broker fees,andothers e.g.,dutycharges,customsfees,importfees,andcurrencyexchange costs,etc Common Costscommontobothglobalanddomesticsourcing e.g.,directlaborandmaterialscosts,leadưtimecosts,transportation PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. Currency Exchange Rates • Depending on the length of the contract • • Foreign purchase cost may change Payment Options • • In foreign currency • Strong dollar: Lower cost of goods • Weak dollar: Higher cost of goods In U.S. currency • • Less risk Risksharing contract PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. StrategicConsiderationsofGlobalSourcing Theadvantagesofsourcingoffshoremustbeweighed againsttheassociatedrisk Globalsourcingviewpoints: Quantitative • Exchange rate uncertainties • Direct costs of importation • Indirect importation costs Qualitative • National interests PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. Ethicalconsequencesofsweatshoplabor OffshoreSourcingAnalysis Thereisatendencytooverestimatethecostsavings fromglobalsourcing Determinationofaccuratefreightanddutycosts Consider the impact of the following issues: • Distance • Communication • Time value of money • Quality issues • Pipelineinventoryproblems PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. FreightandDutyCostsEstimationExample PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. GlobalProviderOpportunism Formsofprovideropportunismthatcanplayavalueư destroyingroleinglobaloutsourcingrelationships: • Shirking • • The extent to which the service provider is inclined to deliberately underperform or withhold resources Poaching • The extent to which the service provider is inclined to utilize information gained through its relationship with the customer for its ownbenefit PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. PowerandGlobal SourcingRisks Increasedriskofoutsourcingprovidershirking Buyerrelationshipspecificinvestments • Mediated power Decreased risk of outsourcing provider shirking • Provider relationship–specific investments • • Not poaching Nonmediated power PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. Countertrade Theexchangeofgoodsforgoodsinfullorpartial paymentofasalestransaction Popularformsofcountertrade: Offset Indirect offset • Coproduction • Licensed production • Subcontractor production • Technology transfer • Barter 10 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. Questions? 11 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. ... Technology transfer • Barter 10 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. Questions? 11 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. C. Benton Jr., All rights reserved. Freight and Duty Costs Estimation Example Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. ... information gained through its relationship with the customer for its own benefit Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. Power and Global Sourcing Risks • • Increased risk of outsourcing provider shirking