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The high cost of foreign sourcing
1Harding and Associates, Bristol, VT, USA.
Hospital Materiel Management Quarterly
|July 6, 1997
Summary
Many industries seek lower prices by sourcing foreign materiel. This study reexamines the true costs of foreign sourcing versus domestic production, revealing potentially surprising financial implications for businesses.
Area of Science:
- Supply Chain Management
- International Business
- Cost Accounting
Background:
- For three decades, industries have prioritized lower purchase prices for materiel through foreign sourcing.
- A significant gap exists in fully assessing the total costs associated with foreign goods.
Purpose of the Study:
- To reexamine and compare the actual total costs of purchasing and using foreign-sourced materiel against domestic alternatives.
- To provide a comprehensive cost analysis beyond initial purchase price.
Main Methods:
- Comparative cost analysis of foreign and domestic materiel sourcing.
- Evaluation of total cost of ownership, including indirect expenses.
Main Results:
- Initial price reductions from foreign sourcing may be offset by hidden or underestimated costs.
- Domestic sourcing may present a more favorable total cost in many industrial scenarios.
Conclusions:
- Businesses should conduct thorough total cost assessments before committing to foreign sourcing.
- A nuanced understanding of all associated costs is critical for strategic procurement decisions.