What are the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers? Discuss your answers
Factors affecting sourcing
1. Total landed cost
When the total cost used to get the product to its destination from foreign companies is cheaper then a company will opt to source its supplies from foreign companies.
2. Efficiency of communication.
When there is efficiency in communication from foreign companies then a company may decide to source its supplies from foreign companies. For example, when foreign companies give detailed and timely information about the products supplied before delivery, then, the company may opt to source from foreign.
When the foreign companies are located close to the recipient company then the company will opt to source supplies from outside the company. This aspect applies best when the company is dealing with fragile or perishable products.
4. Reliability of the supplier
When the foreign suppliers are more reliable in supplying products then the recipient company will opt to source supplies from foreign firms. For example, when the supplying firm does not delay in delivery and they are predictable then it would be better to source supplies from foreign firms.
5.Quality of the product
Quality of products is very vital in supply chains, therefore, a manager of a company should focus on quality more than other factors. When the foreign firm's supply products of higher quality than the recipient company will of to source from the foreign firms rather than the firms within the company.
When there is finance that can support foreign sourcing without interfering with the production cost, then, a company may opt to source supply from foreign firms. For example, when the cost of transportation and insurance had been provided then the sourcing firm will be advantaged.