Breakdown of the total cost of sourcing from China
Tables II-III show the breakdowns of set up costs and ongoing costs across all the six case companies and 18 survey respondent companies. The set up costs and ongoing costs are in line with the framework (Table I). We have excluded from
the tables those items where all companies incurred zero cost. For each item we have calculated an average and standard deviation. For some items the interpretation of these statistics must be treated with care. This is particularly so when most companies do not experience the cost. Here the average might be thought of as an indicator of a long term cost, whereas the absolute values experienced by the companies reporting these costs gives a measure of the impact of short term risks. Item 16, obsolescence, provides a good illustration. It was only experienced by one company but accounted for 24 per cent of the sourcing cost. Not many parts suffer from obsolescence so the long-term cost indicated by an average might be less than 3 per cent, however there is a risk of a significant cost on the occasions when obsolescence occurs. However, as always, there is a danger of reading too much into small sample sizes. The tables should be read by looking at the distribution of data, as well as the summary statistics for a more thorough understanding of the costs.
In the following sections we discuss the various cost items.