How to source globally
By Paul Teague -- Purchasing, 5/9/2006 2:00:00 AM
Cutting costs is the major reason companies source materials and components
offshore--but it's not the only reason.
Ernest G. Gabbard, director of corporate strategic sourcing at Allegheny
Technologies, told the attendees at ISM today that developing alternate
sources and improving supplier quality are also important factors in the
trend toward looking offshore for suppliers.
But, he said, there are risks. Among them: currency issues, the reliability
of offshore suppliers and the total cost of doing business with them.
The currency-exchange issues can affect total cost, gabbard told the
attendees. He suggested that purchasing professionals:
1. Research exchange-rate histories
2. Get price quotes in local currency and U. S. dollars
3. Determine then which currency will be specified in the contract
4. Establish which party will assume the risk if exchange rates change
5. And establish the actual exchange rate in the contract.
Contract in dollars, he said, and the supplier assumes the risk. But, buyers
may have to pay higher prices.
If you contract in a foreign currency, you cover the risk but prices may bed
lower to compensate.
Other factors to take into consideration in offshore sourcing:
A. The cost of licensing permits
B. Freight to the U.S.
C. Insurance
D. Customs duties
E. Quality costs
D. And even the costs of travel to the low cost country to award the
contract.
Other related stories:
More ammunition for outsourcing MRO (April 6, 2006)
How to survive procurement outsourcing (March 16, 2006)
Purchasing Strategies Case Study: Outsourcing since day one (March 16, 2006)
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