Estimating cost‐saving potential from international sourcing and other sourcing levers: Relative importance and trade‐offs

Abstract

Purpose

Research results concerning the cost‐saving potential of international sourcing have been ambiguous and the topic has been covered in isolation without accounting for influences of alternative cost‐saving approaches. This paper aims to analyze the expected financial impact of international sourcing in relation to savings potential attributed to other sourcing tactics, such as, e.g. collaborative product improvement. Furthermore, the paper tests for potential trade‐offs between different levers.

Design/methodology/approach

Data stem from results of 134 cross‐functional cost‐saving workshops using an identical methodology. Workshop participants identified and estimated cost‐saving projects considering seven sourcing levers. Results were recorded in a standardized way and analyzed scrutinizing secondary data.

Findings

Contrary to other studies, data revealed that international sourcing projects averaged 3.4 percent savings expectations. More than 80 percent of total savings potential was attributed to other sourcing levers, such as pooling of demand or process improvement. Results highlight possible trade‐offs between international sourcing and, e.g. joint product optimization.

Research limitations/implications

A rigorous and strict, highly standardized method was employed and data were validated via cross‐functional team discussions, however, ex ante expectations instead of ex post realized savings are analyzed.

Practical implications

Findings give guidance on the importance of international sourcing compared to other levers and help to correct the misconception of international sourcing as a “purchasing panacea.” The findings highlight the need to develop a coherent sourcing strategy for specific commodity groups, including reinforcing tactics and avoiding trade‐offs.

Originality/value

For the first time, explicitly cost‐savings expectations from international sourcing have been analyzed together with other cost‐saving levers concerning relative importance and possible trade‐offs among them.

Citation

Schiele, H., Horn, P. and Vos, B. (2011), "Estimating cost‐saving potential from international sourcing and other sourcing levers: Relative importance and trade‐offs", International Journal of Physical Distribution & Logistics Management, Vol. 41 No. 3, pp. 315-336. https://doi.org/10.1108/09600031111123813