Sourcing is a complex process that involves multiple factors. One of them is the total cost of ownership, which is the sum of the different tariffs associated with product acquisition and consumption (Levy, 1995). There are two major types of total expenses – direct and indirect (BSR, 2018).
The first kind includes taxes, buying costs, and fees, while the indirect one includes training costs, various risks, and other hidden charges (BSR, 2018). Companies realize this phenomenon through the process of definition and analysis (Levy, 1995). Such aspects can be defined in total cost as standards, tariffs, and operational risks.
Afterward, the analysis is conducted, resulting in conclusions that include ideas for further services and product enhancements. For instance, airlines invest in baggage handling systems by applying sourcing and considering total costs, which helps save on innovation and energy (ACRP, 2023). In conclusion, businesses have an advantage because they optimize their supply chains. However, what are the potential challenges in these terms, and how can they be overcome?
A higher acquisition cost from the specific supplier can be justified based on several factors. They are as follows: needs identification, package analysis, and quality estimation (Levy, 1995). When a company’s needs are unique and strict, the highest price can be paid because the outcomes will be beneficial. The evidence here is any five-star hotel that has achieved high status by sourcing the highest-quality items for a successful business, which is pricey.
Sourcing is divided into multiple aspects that benefit both companies and suppliers. Outsourcing is one of them, and it involves third parties under a contract that ensures the delivery of the product (White, 2020). Nearshoring is a form of continuous collaboration between organizations in similar time zones (White, 2020). Offshoring is the practice of employing an independent, full-time team that can be located anywhere (White, 2020). Conclusively, sourcing is beneficial to any business as it optimizes the supply chain, which is enhanced by different forms such as outsourcing, nearshoring, or offshoring.
References
ACRP (2023). Airport baggage handling system decision-making based on total cost of ownership. The National Academies Press.
BSR (2018). New models for sustainable procurement: A working paper from BSR’s procurement leadership group.
Levy, D. (1995). International sourcing and supply chain stability. Journal of International Business Studies, 26, 343-360.
White, T. (2020). Offshoring, outsourcing, nearshoring, onshoring: What’s the difference? The Scalers.