Hidden Costs Threaten Benefits of Global Sourcing

From purchasing.com: ” A series of interviews with global sourcing experts confirms the findings of a recent Procurement Strategy Council report outlining the potential damage that hidden costs can do to the savings potential of a global sourcing program. According to a recent report from the Procurement Strategy Council, the most overlooked cost issues in typical global sourcing cost models that could erode savings fall into two broad buckets: The hidden cost of internal obstacles and the increased sourcing process costs that often occur with global sourcing.”

For example, non-participation by internal organizations to a global sourcing contract (defined as an internal business unit opting out of a given contract or supplier before it is in place) reduces savings potential on average by 8% while non-compliance (where buyers ignore an existing contract and buy through another source) could shave an additional 6% from the global sourcing savings. In both these scenarios, the volume of spend covered by the agreement is diminished, which in turn reduces the overall level of savings achieved. As the two costs models show, lack of attention to such issues can cut global sourcing savings from 25% down dramatically to as low as 4%.” Hidden Costs Threaten Benefits of Global Sourcing

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