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On risk and cost in global sourcing

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  • Holweg, Matthias
  • Reichhart, Andreas
  • Hong, Eui
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    Abstract

    The benefits of global sourcing as part of a firm's purchasing strategy have been widely discussed in the academic literature, yet so there are few models that provide a comprehensive risk and cost assessment to guide managerial decision-making. In particular, few models capture the dynamic nature of many cost drivers, such as transportation and energy cost, labour cost inflation, or carbon offset costs, in their calculations. In this paper, we define three basic cost elements in global sourcing: static, dynamic and hidden cost, and use this framework to assess the costs and risks inherent in global sourcing scenarios from three different points of view: conceptually, analytically and empirically. We highlight the key learning points from each perspective and propose a total cost model of how to make informed global sourcing decisions, which we test by applying it to three exploratory case studies of global sourcing arrangements.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 131 (2011)
    Issue (Month): 1 (May)
    Pages: 333-341

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    Handle: RePEc:eee:proeco:v:131:y:2011:i:1:p:333-341

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Operations strategy Global sourcing Offshoring International operations;

    References

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    1. Helpman, Elhanan & Antras, Pol, 2004. "Global Sourcing," Scholarly Articles 4784029, Harvard University Department of Economics.
    2. Nassimbeni, Guido, 2006. "International sourcing: Empirical evidence from a sample of Italian firms," International Journal of Production Economics, Elsevier, vol. 103(2), pages 694-706, October.
    3. Liu, Fuh-Hwa Franklin & Hai, Hui Lin, 2005. "The voting analytic hierarchy process method for selecting supplier," International Journal of Production Economics, Elsevier, vol. 97(3), pages 308-317, September.
    4. Fink, Carsten & Mattoo, Aaditya & Neagu, Ileana Cristina, 2005. "Assessing the impact of communication costs on international trade," Journal of International Economics, Elsevier, vol. 67(2), pages 428-445, December.
    5. Weber, Charles A. & Current, John R. & Benton, W. C., 1991. "Vendor selection criteria and methods," European Journal of Operational Research, Elsevier, vol. 50(1), pages 2-18, January.
    6. David L Levy, 1995. "International Sourcing and Supply Chain Stability," Journal of International Business Studies, Palgrave Macmillan, vol. 26(2), pages 343-360, June.
    7. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    8. Cavusgil, S. Tamer & Yaprak, Attila & Yeoh, Poh-Lin, 1993. "A decision-making framework for global sourcing," International Business Review, Elsevier, vol. 2(2), pages 143-156.
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    Citations

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    Cited by:
    1. Fleury, Afonso & Fleury, Maria Tereza Leme & Borini, Felipe Mendes, 2012. "Is production the core competence for the internationalization of emerging country firms?," International Journal of Production Economics, Elsevier, vol. 140(1), pages 439-449.
    2. Richard Frensch & Jan Hanousek & Evžen Kocenda, 2012. "Incomplete specialization and offshoring across Europe," FIW Working Paper series 091, FIW.
    3. Horn, Philipp & Scheffler, Paul & Schiele, Holger, 2014. "Internal integration as a pre-condition for external integration in global sourcing: A social capital perspective," International Journal of Production Economics, Elsevier, vol. 153(C), pages 54-65.
    4. Lorentz, Harri & Kittipanya-ngam, Pichawadee & Singh Srai, Jagjit, 2013. "Emerging market characteristics and supply network adjustments in internationalising food supply chains," International Journal of Production Economics, Elsevier, vol. 145(1), pages 220-232.

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