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In-House vs Global Sourcing: Costs, Risks and Supplier Strategy

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Qualitative Criteria to Consider

4 Important Qualitative Criteria

  1. Quality Control: Ensures consistently high quality.
  2. Flexibility: Easier to adapt to changes in demand.
  3. Supply Chain Risk: Reduces dependence on external suppliers.
  4. Strategic Focus: Aligns with the company's core strengths.

Recommendation

We recommend in-house production. It saves 280,000 € per year and improves quality control, flexibility, and supply chain reliability.

Risks of Global Sourcing

  1. Quality Issues: Inconsistent quality control.
  2. Supply Chain Disruption: Delays due to transportation or geopolitical factors.
  3. Communication Barriers: Language and cultural differences.
  4. Currency Fluctuations: Changes in exchange rates affecting costs.

Total Cost of Ownership (TCO)

TCO includes all direct and indirect costs associated with acquiring, operating, and maintaining a product over its entire lifecycle.

3 Important Cost Drivers

  1. Material Costs: The cost of raw materials needed for production.
  2. Production Costs: Expenses related to manufacturing processes, including labor and overhead.
  3. Logistics Costs: Costs for transporting and handling the door panels.

Risks for Global Sourcing

  1. Quality Issues: Potential variability in product quality from different suppliers.
  2. Supply Chain Disruptions: Risks of delays or interruptions due to geopolitical issues or natural disasters.
  3. Exchange Rate Fluctuations: Changes in currency values affecting costs.
  4. Cultural and Communication Barriers: Misunderstandings due to language or cultural differences.

Incoterms

A) EXW (Ex Works): The buyer pays all costs from the seller's location.

B) FOB (Free on Board): The seller pays until goods are on the ship; the buyer pays from there.

Qualitative Criteria for Supplier Selection

  1. Reliability: Consistent delivery times and product quality.
  2. Communication: Clear and effective communication channels.
  3. Financial Stability: The supplier's financial health ensures a long-term partnership.
  4. Compliance: Adherence to legal and regulatory standards.

Negotiation Process

  1. Preparation
  2. Opening
  3. Exchange of Information
  4. Bargaining
  5. Closure

Criteria to Consider Compared to Existing Suppliers

  1. Cost Competitiveness: Compare total landed cost.
  2. Quality Standards: Ensure quality meets or exceeds the current supplier.
  3. Delivery and Lead Times: Evaluate reliability in meeting schedules.
  4. Risk Management: Consider risks such as geopolitical issues and supply chain disruption.

Negotiation Tactics

  1. Anchoring: Start with a high or low initial offer to set the negotiation range.
  2. BATNA: Know your best alternative if the deal falls through.
  3. Logrolling: Trade off different issues to reach an agreement.

Recommended: Anchoring

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