The high cost of foreign sourcing

Buyers in many industries have, for the past 30 years, sought lower purchased prices of materiel by sourcing with foreign suppliers. Few companies have fully assessed the actual cost of purchasing and using these foreign goods and comparing these costs with those of domestic producers. This is a reexamination of the actual costs, not foreign source "bashing." The results may surprise you.     

Supplier development and cost management in Southeast Asia—Results from a field study

This paper is about supplier development when international companies have production sites in Southeast Asia and look for opportunities to switch from international suppliers to local suppliers. We conducted a field study involving site visits to companies in Thailand and Vietnam, and interviews at corporate supply chain departments. Some key observations are: cost management was a dominant motive for taking local supplier development initiatives. Furthermore, local sourcing and local supplier development were important for international companies to improve access to local customer markets. Firms deliberately assessed whether a particular supplier would likely be able to improve sufficiently to warrant investing in supplier development, which typically involved a combination of initiatives, requiring the international firm to take considerable efforts. Local sourcing strategies and priorities for supplier development initiatives tended to focus on items with low supply risk and low volume. These findings are discussed based on transaction cost economics, and we suggest that firms use several ways to reduce the risk of transaction-specific investments in supplier development initiatives.     

Joint decision of procurement lot-size,supplier selection,and carrier selection

The joint decision making of procurement lot-size, supplier selection, and carrier selection has potential to reduce buyer's purchasing expenditures. Furthermore, the total logistics cost can also come down through economies of scale in the purchasing and transportation costs, and reduction in supply chain disruptions such as rejections and late deliveries. We study a procurement setting in which a buyer needs to purchase a single product from a set of suppliers over finite discrete time periods to satisfy service level requirements. The suppliers offer all-unit quantity discounts, and transportation cost depends on carrier capacity as well as geographical location of suppliers. This paper proposes an integer linear programming model to simultaneously determine the timings of procurement, lot-sizes, suppliers and carriers to be chosen so as to incur the least total cost over the planning horizon. A numerical example is included to demonstrate the effectiveness of the proposed model in establishing tradeoffs among purchasing cost, transaction cost, and inventory holding cost. Sensitivity analysis has been carried out to understand the effects of the model parameters on the purchasing decisions and total cost. Managerial insights of this study serve as a reference for decision makers to develop effective procurement strategies.     

The “ugly twins”: Failed low-wage-country sourcing projects and their expensive replacements

International sourcing and sourcing from low-wage countries remain topics of high priority for firms in industrialized countries. Lower factor costs, particularly in low-wage countries, have led to high expectations of savings from both managers and academics. All too often, scientific and particularly practitioner publications present international sourcing as a conditio sine qua non for becoming a (more) successful company. However, research has shown that these extensive savings do not materialize automatically, particularly when sourcing customer-specific items, such as automotive components. This paper analyzes the operational and financial implications and real effects of cost-oriented sourcing from China, based on the specific example of a European automotive OEM. Furthermore, it sheds light on the ambivalent and often overrated savings impact of sourcing from low-wage countries. Our analysis of a comprehensive set of secondary data from a company data warehouse reveals that more than three quarters of the analyzed China-sourcing projects do not reap the expected benefits. Moreover, each failed low-wage-country sourcing project has its so-called “ugly twin”, the need to resort back to suppliers from high-wage countries at a higher cost. Implications for managerial practice include the suggestion to employ extended calculation methods, entailing influence factors other than from procurement, particularly for low-wage-country sourcing. Furthermore, we recommend creating an awareness of potentially biased decision-making among purchasing personnel who follow standard industry recipes.     

Exploring early purchasing involvement in discontinuous innovation: A dynamic capability perspective

This paper aims to address the gap concerning our knowledge about early purchasing's involvement (EPI) in new product development (NPD) projects in contexts characterized by discontinuous innovation. We adopt a dynamic capability perspective to explore how existing sourcing and supplier relationship management capabilities are adapted when purchasing agents become involved in discontinuous innovations projects. We use an embedded case-study approach to study four NPD projects in a heating, ventilation, and air conditioning (HVAC) company. The case studies are based on interviews with managers and staff from the research and development, purchasing, and marketing departments, as well as suppliers involved in the projects. Our empirical findings capture emerging purchasing practices including a “reversed” sourcing process, purchasing-marketing interaction, and the coordination of “a learning atmosphere” between the R&D department and suppliers through proactive innovation meetings and creativity workshops. We derive propositions to conduct further research into the role of the purchasing department in times of discontinuous innovation. We also provide a framework of sourcing and supplier-relationship practices that firms can use when embarking on discontinuous innovation.     

Sourcing Decisions with Capacity Reservations under Supply Disruptions

Firms employing both offshore outsourcing and nearshore sourcing strategies may face supply disruption, demand uncertainty, and quality risks simultaneously. Sourcing decisions become inevitably important and complicated when both profit and the customer-service level are taken into consideration. In this paper, we model a scenario where a manufacturer who faces stochastic demand procures major modules from an overseas supplier and two local suppliers. The overseas supplier offers quality products while being susceptible to disruption risks; if the local suppliers, who are completely reliable and serve as a backup, offer products that are of inferior quality, it may result in lower market acceptance and a bad experience for the final customers. The manufacturer has to reserve capacity with backup suppliers before urgent orders are placed, when the primary source experiences a shortfall. We explicitly derive the manufacturer’s optimal order quantities and reservation quantities, which are functions of the heterogeneous suppliers’ wholesale prices, reservation prices, and other parameters. The impacts of the fill-rate constraint and customer-experience quality constraint on the manufacturer’s purchasing decisions are investigated. Interesting managerial insights on the merits of backup sourcing with capacity reservations for managing demand uncertainties and supply disruption risks are also discussed.     

How to achieve cost savings and strategic performance in purchasing simultaneously: A knowledge-based view

The competitive advantage purchasing provides has been debated for decades. For a novel perspective we derive a theoretical framework grounded in the knowledge-based view in order to examine how purchasing knowledge and purchasing integration impact cost and strategic performance. The derived hypotheses are tested based on extensive secondary data from a large European multinational utility company. The 179 studied ‘purchasing-internal client relationships’ contain real contracted savings data and internal client ratings of purchasing knowledge, purchasing integration and strategic purchasing performance. We show that purchasing knowledge is a major antecedent for both savings and strategic purchasing performance. This effect is further amplified by purchasing integration. With this study, we extend the understanding of the purchasing knowledge–performance link. We conclude that purchasing knowledge becomes particularly valuable when combined with other functions' processes through purchasing integration. This causal chain is also supported through general knowledge-based view theory. Moreover, we provide numerical evidence of the value of knowledge creation and integration processes to purchasing professionals in our managerial implications based on results obtained from actual purchasing savings data.     

The impact of stakeholder orientation on sustainability and cost prevalence in supplier selection decisions

The stakeholder approach has taken a prominent role in the discussion of sustainability measures at varying strategic levels and corporate functions. Literature on sustainability suggests that firms have to cope with enhanced pressure from different stakeholder groups regarding their upstream supply management practices. At the same time purchasing managers face the trade-off between sustainability and cost prevalence in selecting new suppliers. Thus, it is of major concern for companies in general and purchasing organizations in particular to know and understand how purchasing managers react to the influence of specific stakeholder groups when it comes to supplier selection decisions. Following this notion we formulate six sets of hypotheses linking the adoption of ethical business culture to the prevalence of sustainability and cost criteria in supplier selection decisions to be tested in a path analytical model.Based on the results of an empirical study conducted with purchasing managers from multi-national firms located in Germany, this paper makes two major contributions: first, it sheds light on direct effects of shareholder, public, and customer orientation on the evaluation of the outlined-trade off; second, it investigates the indirect effects by introducing the formalization of ethical culture as a mediating variable to assess the impact of the three kinds of shareholder orientation on the propensity to select suppliers based on their performance in terms of social and environmental criteria as well as cost performance.     

Do all suppliers dislike electronic reverse auctions?

Electronic reverse auctions (ERAs) are a controversial sourcing tool. While it is said to have many advantages to buyers, and even some to suppliers as well, it is also heavily criticised for damaging cooperative buyer–supplier relationships. It is often suggested that suppliers experience more disadvantages than advantages from the use of this tool and therefore many, if not all suppliers dislike ERAs. In this paper, we investigate whether all suppliers indeed dislike ERAs and we explore the relationships between supplier characteristics and supplier opinions of ERAs. We find that a small group of suppliers is actually positive about ERAs and that by far the strongest predictor of ERA opinions of a supplier representative is the supplier country.     

考虑责任违规中断的负责任采购博弈

随着全球供应链的发展,供应商过程违规越来越成为供应中断的常见原因。为改善过程合规性,很多跨国公司已经在全球范围内,尤其是发展中国家实施负责任采购。针对供应商-采购方过程行为建模内生化责任违规中断风险,构建采购方和风险供应商之间的Stackelberg博弈模型,研究订货比例、成本结构等对决策产生的影响。通过比较静态分析发现,在责任违规中断风险下,即使跨国公司的订单占比较小,风险供应商也有动力不断提高合规水平直至完全合规。这说明跨国公司可通过游说当地政府提高对过程违规行为的监管和惩罚,以此激励风险供应商提高合规努力。     

Sole sourcing,competitive sourcing,parallel sourcing: Mechanisms for supplier performance

Quality management practitioners in the USA such as W. Edwards Deming, strongly advocate the Japanese model of supplier relationships-recommending substantial specific investment in a single supplier for improved co-ordination and higher quality. But the strategy literature and conventional wisdom favor multiple sourcing, suggesting that a high level of specific investment in a sole source will lead to problems with supplier performance. Using agency theory, we construct a model to evaluate the tradeoff between the costs to set up and coordinate with suppliers and the incentive for performance provided by competition. We find that the validity of Deming's Point Four, that sole sourcing is more profitable than competitive sourcing, depends on parameters such as profit sensitivity to supplier performance.     

Organizing IT purchases: Evidence from a global study

Information technology (IT) purchasing is covering an increasing part of companies’ expenditure. Scholars mainly investigated IT purchasing in terms of make or buy drivers from an IT perspective. Similarly, companies have been focusing on make or buy decisions and specifications definition in relation to technological characteristics. This often resulted in failures related to the goods/services purchased due to e.g. lack of negotiation skills, contracting, and suppliers’ relationship management. Accordingly, IT purchasing might require new structures and processes management.The purpose of the paper is to investigate what are the possible configurations for IT purchasing, and how these configurations are characterized in terms of purchasing process (i.e., strategic purchasing, sourcing and supply) and organization (i.e., roles involved, level of centralization, and span of control). Furthermore, the paper asks how IT relevance and purchasing maturity might affect these configurations. Through 12 case studies of leading international companies, four main configurations of the organization and the purchasing process for IT purchasing were identified, namely neutral (no specific approach is in place), IT oriented (the IT department takes the lead over the purchasing department), purchasing oriented (the purchasing department manages the whole IT sourcing process) and IT strategic (IT and purchasing departments jointly manage the IT purchasing process). The choice of the configuration is driven by IT strategic importance (low for neutral and purchasing oriented) and purchasing maturity of the company (low for neutral and IT oriented).     

中国制造业应对全球采购的对策分析

作为世界工厂,我国制造企业在全球供应链的分工上扮演着成本中心的角色.全球供应链的两端,即决策中心和利润中心都被牢牢地掌控在跨国企业手中.在低成本和高利润的驱动下,跨国企业纷纷在华设立采购中心,并逐年扩大采购额,甚至不为本国政府的反倾销等政策而改变自己的采购行为.面对全球采购的机遇,我国制造业必须积极应对,与国内供应链的上下游企业建立采购契约关系,继而发展成为以产业链为主的行业组织关系.在提升国内供应链实力的基础上,掌握与跨国企业采购谈判的主动权,与其建立长期稳定的供应关系,并在全球采购网络中占有一席之地.     

A pragmatic decision model for inventory management with heterogeneous suppliers

For enterprises, it is imperative that the trade-off between the cost of inventory and risk implications is managed in the most efficient manner. To explore this, we use the common example of a wholesaler operating in an environment where suppliers demonstrate heterogeneous reliability. The wholesaler has partial orders with dual suppliers and uses lateral transshipments. While supplier reliability is a key concern in inventory management, reliable suppliers are more expensive and investment in strategic approaches that improve supplier performance carries a high cost. Here we consider the operational strategy of dual sourcing with reliable and unreliable suppliers and model the total inventory cost where the likely scenario lead-time of the unreliable suppliers extends beyond the scheduling period. We then develop a Customized Integer Programming Optimization Model to determine the optimum size of partial orders with multiple suppliers. In addition to the objective of total cost optimization, this study takes into account the volatility of the cost associated with the uncertainty of an inventory system.     

Sustainability in multi-tier supply chains: Understanding the double agency role of the first-tier supplier

In light of the growing complexity of globally dispersed, multi-tier supply chains, the involvement of first-tier suppliers has become instrumental in the quest for achieving sustainability compliance along the supply chain. We describe this new responsibility as the double agency role. We employ agency and institutional theory arguments to explore the conditions under which first-tier suppliers will act as agents who fulfill the lead firm's sustainability requirements (i.e., the primary agency role) and implement these requirements in their suppliers' operations (i.e., the secondary agency role). The findings from three in-depth case studies embedded in different institutional contexts highlight the importance for lead firms to incentivize each agency role separately and to reduce information asymmetries, particularly at the second-tier level. In addition, our inductive analysis reveals several contingency factors that influence the coupling of the secondary agency role of the first-tier supplier. These factors include resource availability at the first-tier supplier's firm, the lead firm's focus on the triple-bottom-line dimension (i.e., environmental or social), the lead firm's use of power, and the lead firm's internal alignment of the sustainability and purchasing function. We integrate our findings in a conceptual framework that advances the research agenda on multi-tier sustainable supply chains, and we subsequently outline the practical implications of assigning the double agency role to first tier suppliers.     

石油物资集中采购模式的分析

实行石油物资的集中采购，能有效降低采购成本,提高油田经济效益，对油田企业至关重要。近年来，我国三大石油公司大力推行集中采购，取得十分明显的经济效果。由于物资种类多,采购规模大，因而相应的供应商数量也非常多。而油田多以传统采购模式为主，采购部门重复，采购效率低下。采购成本增加。在此分析集中采购在石油物资采购中的优势，以期达到降低采购成本，增加油田效率的目的。     

An exploration of supplier selection practices across the supply chain

The US auto industry has undergone tremendous changes during the past decade. Companies have increased their level of out-sourcing and are relying more heavily on their supply chain as a source of their competitive advantage. Thus, determining which suppliers to include in the supplier chain has become a key strategic consideration. However, previous studies of supplier selection have not considered a company's position in the supply chain. In this paper, we compare supplier-selection practices based on a survey of companies at different levels in the auto industry. Our findings rebut the common thinking that indirect suppliers who are more involved in commodity purchasing emphasize initial price and de-emphasize relational considerations. We learned that selecting suppliers based on the potential for a cooperative, long-term relationship is just as important to direct and indirect suppliers as it is to the auto assemblers. We also learned that price is one of the least important selection items, regardless of position on the supply chain. Further, contrary to the existing understanding that quality and delivery are separate constructs, they formed a single construct in our study. To summarize the empirical results, no differences among the auto assemblers, direct suppliers, and indirect suppliers were found for the importance placed on consistency (quality and delivery), reliability, relationship, flexibility, price, and service. Statistically significant differences were found between the auto assemblers and indirect suppliers on the importance placed on technological capability and financial issues.     

Low power,high ambitions: New ventures developing their first supply chains

This paper investigates sourcing decisions for new ventures. Sourcing decisions are especially problematic for start-ups because they lack resources, knowledge and legitimacy to evaluate and interact with suppliers. We develop and apply a framework that connects global sourcing, relationship development and attractiveness. Further, we investigate how new ventures develop their first supply chains by conducting an exploratory multiple case study of six Norwegian start-ups. Based on our findings, we develop three propositions regarding how start-ups mediate their lack of attractiveness through pre-sales and by choosing shorter supply chains and smaller suppliers. The implications for practice include emphasizing the importance of developing a business relationship with the supplier in parallel with making sourcing decisions. This study is a novel contribution to an underexplored topic, and we conclude by proposing a research agenda for future explorations of start-ups and supply chain development.     

Foreign direct investment and global sourcing choices of firms in the US

This paper investigates factors affecting the global sourcing choices of firms in the US: (1) US investment abroad; (2) foreign direct investment in the US; (3) wage–productivity ratio; and (4) transaction cost. I found that there is a statistically significant association between the country of sourcing choices and foreign direct investment. Both the wage–productivity ratios and transaction costs are not statistically significant at the conventional significance level, but their regression coefficients show proper signs. The paper also examines the patterns of foreign direct investment among countries and compares transaction costs by income group. Copyright © 2000 John Wiley & Sons, Ltd.     

Are supply chain management theories culturally constrained? An empirical assessment

Culture plays an increasingly important role in supply chain management as many manufacturing firms have linkages to suppliers and customers from various countries. In this paper we propose treating culture as an explanatory variable to test the assumption that existing theories are universally applicable. The primary research question was: Do purchasing theories built on samples from mainly North American companies with Anglo-Saxon cultures apply in other cultural contexts? We developed and tested a model where top management??s view of the purchasing function affects purchasing practices and manufacturing performance. The statistical results provide evidence that the engagement and efficacy of purchasing practices is highly dependent on culture. This finding has significant implications from the perspective of decision making in international supply chain management. Specifically, top managers across multiple cultures could decide to structure and evaluate the purchasing function similarly, but these decisions could lead to different practices and different outcomes depending on the culture.