Developing a Framework for Evaluating the Logistics Costs in Global Sourcing Processes an Implementation and Insights

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Developing a framework for

evaluating the logistics costs in

global sourcing processes

Evaluating the

logistics costs

785

An implementation and insights

Amy Z. Zeng

Department of Management, Worcester Polytechnic Institute, Worcester,

Massachusetts, USA, and

Christian Rossetti

Department of Supply Chain Management, College of Business,

Arizona State University, Tempe, Arizona, USA

Keywords Sourcing, Transportation, Logistics, Performance measures, Case studies

Abstract Global sourcing is becoming a prerequisite for companies competing in today’s market.

The logistics costs often comprise a large portion of the total global sourcing cost, thereby

determining the effectiveness of this procurement strategy. However, evaluating the logistics cost in

a global context is frequently difficult. This paper presents a five-step evaluation framework and

illustrates how this framework can be implemented using a case study at a leading firm in the US

aviation industry and its part supplier in Chengdu, China. The framework not only identifies the

key logistics cost items, but also suggests a way of quantifying each of the cost elements. The

computational part of the framework can be easily implemented on spreadsheets and offers

substantial flexibility to accommodate assessment of various transportation alternatives and

sensitivity analysis.

1. Introduction

Improved technology and intensified competition have enabled and forced

companies to expand their markets worldwide. The most successful companies

often develop their products in Europe and the USA, manufacture in Asia and

Latin America, and sell worldwide (Burnson, 1999). As one of the consequences

of this trend, global sourcing has rapidly arisen as a...