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On risk and cost in global sourcing

Author

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

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.

Suggested Citation

  • Holweg, Matthias & Reichhart, Andreas & Hong, Eui, 2011. "On risk and cost in global sourcing," International Journal of Production Economics, Elsevier, vol. 131(1), pages 333-341, May.
  • Handle: RePEc:eee:proeco:v:131:y:2011:i:1:p:333-341
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    References listed on IDEAS

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    6. repec:hrv:faseco:4784029 is not listed on IDEAS
    7. 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.
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    Citations

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    Cited by:

    1. Richard Frensch & Jan Hanousek & Evžen Kocenda, 2012. "Incomplete specialization and offshoring across Europe," FIW Working Paper series 091, FIW.
    2. repec:eee:joreco:v:26:y:2015:i:c:p:153-167 is not listed on IDEAS
    3. Bhattacharya, Mita & Narayan, Paresh, 2015. "Output and labor productivity in organized manufacturing: A panel cointegration analysis for India," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 171-177.
    4. Kim, Minkyun & Chai, Sangmi, 2017. "The impact of supplier innovativeness, information sharing and strategic sourcing on improving supply chain agility: Global supply chain perspective," International Journal of Production Economics, Elsevier, vol. 187(C), pages 42-52.
    5. 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.
    6. repec:eee:iburev:v:27:y:2018:i:2:p:339-354 is not listed on IDEAS
    7. Ancarani, Alessandro & Di Mauro, Carmela & Fratocchi, Luciano & Orzes, Guido & Sartor, Marco, 2015. "Prior to reshoring: A duration analysis of foreign manufacturing ventures," International Journal of Production Economics, Elsevier, vol. 169(C), pages 141-155.
    8. 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.
    9. 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.
    10. Golini, Ruggero & Kalchschmidt, Matteo, 2015. "Managing inventories in global sourcing contexts: A contingency perspective," International Journal of Production Economics, Elsevier, vol. 165(C), pages 64-78.
    11. Dachs, Bernhard & Kinkel, Steffen & Jäger, Angela, 2017. "Bringing it all back home? Backshoring of manufacturing activities and the adoption of Industry 4.0 technologies," MPRA Paper 83167, University Library of Munich, Germany.
    12. Lorentz, Harri & Töyli, Juuso & Solakivi, Tomi & Ojala, Lauri, 2016. "The effect of a geographically dispersed supply base on downside risk: Developing and testing the N-shaped theory," International Business Review, Elsevier, vol. 25(4), pages 872-882.
    13. repec:spr:opmare:v:10:y:2017:i:3:d:10.1007_s12063-017-0124-5 is not listed on IDEAS

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