BUS 474 Lecture Notes - Lecture 7: Offshoring, Cost Overrun, Exchange Rate

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 474
• Professor: Ulrich Paschen

Document Summary

Impact of globalization on supply chain networks: opportunities to simultaneously increase revenues and decrease costs, accompanied by significant additional risk, risk mitigation strategy is crucial, uncertainty of demand and price drives the value of building flexible production capacity. The offshoring decision is based off of total cost and offshoring fails for the following reasons: focusing exclusively on unit cost rather than total cost, ignoring critical risk factors. Total cost is not just your unit costs, it includes key elements such as: Customer duties, value added-taxes, local tax incentives, Cost of risk, procurement staff, broker fees, infrastructure, and tooling and mold costs. Exchange rate trends and their impact on cost. In order to minimize the following risks, awareness and mitigation are critical: Supply disruption: trade barriers embargo (russia, syria, expected long-term holiday (chinese new year, labor disputes, supplier bankruptcy. Supply delays: high capacity utilization at supply source. Inflexibility of supply source: poor quality or yield at supply store.