Developing a framework for evaluating the logistics costs in global sourcing processes

Global sourcing is becoming a prerequisite for companies competing in today's market. The logistics costs often comprise a large portion of the total global sourcing cost, thereby determining the effectiveness of this procurement strategy. However, evaluating the logistics cost in a global context is frequently difficult. This paper presents a five-step evaluation framework and illustrates how this framework can be implemented using a case study at a leading firm in the US aviation industry and its part supplier in Chengdu, China. The framework not only identifies the key logistics cost items, but also suggests a way of quantifying each of the cost elements. The computational part of the framework can be easily implemented on spreadsheets and offers substantial flexibility to accommodate assessment of various transportation alternatives and sensitivity analysis.