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On risk and cost in global sourcing

  • Holweg, Matthias
  • Reichhart, Andreas
  • Hong, Eui
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    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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    File URL: http://www.sciencedirect.com/science/article/B6VF8-5004PXW-1/2/2912caeaa8fbb922446ecaf221d081af
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Edward L. Glaeser & Janet E. Kohlhase, 2003. "Cities, Regions and the Decline of Transport Costs," Harvard Institute of Economic Research Working Papers 2014, Harvard - Institute of Economic Research.
    7. David L Levy, 1995. "International Sourcing and Supply Chain Stability," Journal of International Business Studies, Palgrave Macmillan, vol. 26(2), pages 343-360, June.
    8. repec:hrv:faseco:4784029 is not listed on IDEAS
    9. 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.
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