Supply chain management Essay

938 Words4 Pages
Case 9
Eastern Waves, Inc.


Mr. Patton, vice-president of purchasing for Code C, Inc., is concerned about a price increase from a Malaysian supplier. Last summer Code C was celebrating a 60 percent cost reduction based on replacing their major specialty steel supplier with Eastern Waves, in Kuantan, Malaysia. Eastern Waves is a small steel manufacturing company in Malaysia. It has several plants in Malaysia and China and produces various downstream steel products such as angle steel, I-beam, and round bar. The angle steel plant is located in Kuantan, Malaysia. The production method of the angle steel is called continuous rolling, and the key raw material ingredient for angle steel production is billets. When operating
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Global vs. domestic Sourcing
The costs of global sourcing include some of the same costs found in domestic sourcing; there are also costs that are different. The major cost categories are administrative, exclusively foreign and common costs.

1. Administrative Costs

Administrative costs of foreign sourcing include identification, qualification, program development, travel, broker fees and others that are not directly involved with the product. Some of these costs are common to both the domestic and international aspects of sourcing.

2. Exclusively foreign costs

Exclusively foreign costs are those that would not be incurred if a domestic source were used. Examples of these costs are duty charges, customs fees, import fees and currency exchange costs. Ocean and air freight could be mentioned, but these are part of the transportation costs of a good that would be incurred from any source. In the case of Eastern Waves, exclusively foreign costs are established by governments and are very difficult to avoid.

3. Common Costs

Finally, there are those costs that are common to both global and domestic sourcing. Direct labor and materials costs, lead-time costs, transportation costs and inventory costs are a part of both domestic and offshore sourcing. Transportation costs, inventory costs, and lead-time costs tend to be higher when sourcing globally. On the

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