Overseas sourcing decisions – the total cost of sourcing from China

KW Platts · Ninghua Song

64 citations0/0 files storedSupply Chain Management An International Journal

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Outsourcing and Supply Chain Management Quality and Supply Management Sustainable Supply Chain Management

Abstract

Purpose Although cost savings are found by many researchers to be a major reason for sourcing from China, the actual cost savings may not be as great as expected. This paper aims at studying and comparing the true cost of sourcing from China and companies' perceptions of the total cost of their China sourcing projects. Design/methodology/approach This research comprises six case studies and a mailed survey to 201 UK manufacturers with the experience of global sourcing from China. Comparisons of the findings from the cases and the survey are made. Findings The findings provide a comprehensive analysis of the total costs of outsourcing from China. Additional costs (additional to the quoted price), found from in‐depth case studies, averaged 50 per cent of the quoted price. The perception of additional costs, found from a survey, averaged 25 per cent of the quoted price. Taken together, these findings suggest that companies generally do not comprehensively measure the costs of global sourcing, and significantly underestimate the true costs incurred. Practical implications This has implications for decision making and ultimately profitability, and the paper suggests that more attention is paid to measuring the actual total acquisition costs. It confirms the benefit of a comprehensive cost framework, as a checklist that will prompt companies to think about all the possible sources of cost when sourcing globally. This should both guide their decision making, and also act to identify possible cost reduction activities. Originality/value This research is the first effort to establish the total cost of sourcing from China and to compare this with companies' perceptions of the cost of such sourcing. It is valuable in providing increased understanding of the sources and magnitudes of the costs of sourcing from China.

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References

1984Case Study Research: Design and Methods 1994Qualitative Data Analysis: An Expanded Sourcebook 2004Case Study Research 2009Building theories from case study research 2007Mail and internet surveys : the tailored design method 2023An Introduction to Qualitative Research 2002Case research in operations management 2007Mail and internet surveys: The tailored design method, 2nd ed.

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2018Analyzing the sourcing literature: Over two decades of research 2017The dark side of global sourcing: a systematic literature review and research agenda 2016Flexicurity and relocation of manufacturing 2016Environmental Orientation of Exporting SMEs from an Emerging Economy: Its Antecedents and Consequences 2012Impacts of business environment changes on global manufacturing outsourcing in China 2019Supply chain agility as an acclimatisation process to environmental uncertainty and organisational vulnerabilities: insights from British SMEs

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