Class 18 - Worldwide Sourcing and Globalization

Question 1

Sourcing Decisions

Answer 1

Determines who and where:

• In-Source: Make
• Out-Source: Buy

Where can be defined as:

• Domestic: home country/local/onshore
• Offshore (International): relocation of a business process from one country to another
• Near shore: relocation of business processes to (typically) lower cost foreign locations, but in close geographical proximity
• Re-shore: moving offshoring back onshore (domestic); also known as “backshoring” or “inshoring”

Question 2

Why Source Worldwide?

Answer 2

1. Cost/price benefits: often 20-30% reduction
2. Access to product and process technology (innovation)
3. Quality
4. Access to only source available
5. Introduce competition to domestic suppliers
6. Establish a presence for marketing effort (sales): countertrade requirements
7. React to buying patterns of competitors
8. Reduce financial risk: currency exchange and inflation

• Do not assume domestically is the best
• Firms must move from in-source to out-source to be competitive. This has created the competitive background for SCM.

Question 3

Worldwide Sourcing is Difficult

Answer 3

1. Resistance to change
2. Finding new suppliers and risk of new supplier
3. Lack of knowledge: understanding the processes and documentation required (legally), domestic and international regulation
4. Travel distance requirement for people
5. Longer more complicated lead times
6. Language, business custom & cultural barrier
7. Overall increased supply risks: currency

Question 4

Worldwide Sourcing Costs

Answer 4

1. Packaging: Product Protection
2. Transportation
3. Customs duty: paid whenever a shipment crosses international lines
4. Insurance
5. Brokers: transportation
6. Port and terminal fees
7. Taxes
8. Communication: phone, travel, mail
9. Currency exchange
10. Inventory carrying costs