The logistical implications of global sourcing Free Essay Example

The logistical implications

The logistical implications of global sourcing makes its prominence for the reduction in transport costs and location of economic activity. Fawcett and Birou, 1992; Das and Handfield, 1997 as cited in Eui Hong and Matthias Holweg presents another important logistics issue in global sourcing, which is a compatibility check between JIT sourcing and global sourcing. As JIT sourcing places emphasis on the delivery of small quantities in frequent intervals, whereas the large distance of global sources commands transportation in large batches, conflict has to be resolved with reference to buyer-supplier proximity.

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For globally sourced items, the proximity and reliable ness of the supply lines is becoming major concern (Fawcett and Birou, 1992). According to Vickery (1989, the key success factors for achieving global JIT sourcing include: improved logistical and production planning and scheduling by the buyer; implementation of effective buyer-seller communication links with proactive utilisation of time zone differences; the development of buyer-seller long term relationships with consequent volume and logistical economies; and expeditious clearance and movement through customs.

(Eui Hong and Matthias Holweg).

‘Total Acquisition Cost Model’ (TACM)

Lowson (2002) proposes an approach to quantify the cost of sourcing. He proposes a ‘Total Acquisition Cost Model’ (TACM) that can be used to quantify the supply system costs associated with sourcing strategies, thereby allowing to compare the inflexibility costs of offshore procurement versus domestic, responsive and flexible supply. The inflexibility cost involves issues such as longer lead-times and a general lack of flexibility as part of a response to demand changes from customers.

This study shows how factors such lead-time, inventory, customer service level and vendor performance might be used to assess certain elements of a sourcing operations strategy by checking quantified LISP (Lead-time for supply; inventory at a particular supply pipeline stage; customer service level; vendor performance which involves supplier service level and vendor process time) performance scores of different types of sourcing strategies.

Flexibility of the supply chain has been an issue in many studies (Fisher, 1997; Gilmore and Pine, 1997; Lummus et al. , 2003), since understanding supply chain flexibility is important for several reasons: firstly, increasing demand of mass customisation requires supply chains to meet individual customer needs without adding significant cost (Holweg and Pil, 2001).

Secondly, in many innovative industries including apparel and electronic industries, uncertainty of demand is very high, and creating a responsive supply chain is one method of reducing uncertainty. Thirdly, the ever-changing environment in which companies find themselves require rapid new product introduction, quick response to customer requirements in all parts of the world, and fast turn-around on customer orders to thus maximize the speed of response to any changes in the market place.