Everyone knows that price is one of the most important factors when making any buying decision. Throughout my career as a purchasing agent, it has been my experience that certain countries on the other side of the world frequently provide a great piece-price, making buying from overseas an obvious choice at first glance.
But is it really? For a number of years, I did not understand the hidden costs associated with purchasing from offshore. Since it is estimated that purchasing from offshore consumes around 400% more time than purchasing domestically, the decision of where to purchase should not be made rashly. Over time, I have come to recognize at least five hidden costs of buying from overseas that in my opinion render it a less attractive alternative:
Long lead times
The first hidden cost of buying from offshore are the long lead times. It is not uncommon for American buyers to experience lead times of 12-14 weeks from the time the purchase order is sent until the time the product arrives on the dock. Some items will naturally have long lead times regardless of where they are purchased from; adding the time to ship across the ocean just makes the problem worse. I have even experienced lead times of up to 6 months!
The need to hold increased inventory
Because of the long lead times, I have often found it necessary to hold enough inventory to cover the ebb and flow of demand. But this can prove to be very costly – the more so when the items in question already have a high unit cost. I have found that purchasing from domestic suppliers almost always reduces the amount of standing inventory it is necessary to hold.
Slower response times
Because of the long lead times, the response time to correct shipments of non-conforming parts or to receive emergency orders is typically much longer. This can be a serious problem when orders need to be shipped, but you either don’t have any parts, or all the parts that you have on hand are non-conforming. Domestic suppliers can respond more quickly to problems, changes, and emergencies.
Increased shipping costs and import fees
It should come as no surprise that buying from farther away will increase shipping costs, and this is true even of domestic suppliers. However, there is an exponential leap in costs to ship product across the ocean, not to mention the fact that bringing product into the U.S.A. from a foreign country will also incur customs fees and other import costs.
Because our company is located in EST of the USA, communication is slower with time zones that have their day-night cycle offset, or even flipped with respect to ours. Linguistic and cultural differences (various customs, different holidays, etc.) can also play into this, making communication with many of our overseas suppliers more difficult.
Though situations may exist that make offshore purchasing the best option, these five factors typically render it much more expensive in the long run. Purchasing domestically is a usually a more cost-effective alternative, so why put your company at risk? Buy American!
Brian Kooshian, Purchasing Agent