Pretzle Wagon is evaluating the possibility of offshoring part of his operation and developing a spreadsheet to help assess the total cost of the decision. What elements should be included in the evaluation?
What will be an ideal response?
Answer:
1. Supplier price: should link to costs from direct materials, direct labor, indirect labor, management, overhead, capital amortization, local taxes, manufacturing costs, and local regulatory compliance costs.
2. Terms: costs are affected by net payment terms and any volume discounts.
3. Delivery costs: include in-country transportation, ocean/air freight, destination transport, and packaging.
4. Inventory and warehousing: include in-plant inventories, in-plant handling, plant warehouse costs, supply chain inventories, and supply chain warehousing costs.
5. Cost of quality: includes cost of validation, cost of performance drop due to poorer quality, and cost of incremental remedies to combat quality drop.
6. Customer duties, value-added taxes, local tax incentives.
7. Cost of risk, procurement staff, broker fees, infrastructure (IT and facilities), and tooling and mold costs.
8. Exchange rate trends and their impact on cost.
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