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 ã ã 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 ã Behavioralissues PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. CostsofGlobalSourcing ã Costcategories: ã 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 ã Costscommontobothglobalanddomesticsourcing ã 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 ã ã Theadvantagesofsourcingoffshoremustbeweighed againsttheassociatedrisk Globalsourcingviewpoints: ã ã Quantitative • Exchange rate uncertainties • Direct costs of importation • Indirect importation costs Qualitative • National interests PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. ã Ethicalconsequencesofsweatshoplabor OffshoreSourcingAnalysis ã 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 ã 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 ã ã Increasedriskofoutsourcingprovidershirking ã 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 ã ã Theexchangeofgoodsforgoodsinfullorpartial paymentofasalestransaction Popularformsofcountertrade: ã Offset ã 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