Hidden Costs in Global Sourcing

Item price is not the sole criterion in global sourcing. There are a number of hidden costs that should be included in the decision making process. They include the following  

The total cost of ownership (TCO) approach developed at General Electric Wiring Devices (Smytka and Clemens, 1993) can be used to include the hidden costs of global sourcing. As discussed in Chapter 6, (Section 6.2.4.1) TCO looks beyond the unit price of the item and includes the cost of other factors, such as quality, delivery, supply disruption, safety stock, etc. TCO then assigns a cost to each factor and computes the total cost of ownership with respect to each supplier. Finally the business is awarded to the supplier with the lowest total cost. 

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