What cost savings percentages can I expect through Low Cost Country Sourcing ?
While it is difficult to predict cost savings potential as the particular commodities, country source, quality requirements, and current pricing status is not known, typical savings for manufactured product from China, India, and Southeast Asia, can range from 10 % to 50 % of standard North American cost. Cost savings can only be adequately compared on a landed cost basis, so comparisons must include transportation, customs duties, and currency hedging contracts required to deliver product to your factory door. Most projects result in an 18 % to 35 % total cost savings.
How can risks of Low Cost Country Sourcing be minimized to an acceptable level ?
Without a doubt, many companies have attempted to source product from low cost countries with disastrous results. Without experienced staff to understand the risk factors and put processes and procedures to mitigate those risks, failures can easily occur. Many companies have experienced part shortages, delayed shipments, poor quality, intellectual property infringement, foreign currency losses, lost shipments, and warranty claims in initial attempts at Low Cost Country Sourcing. In reality, any of these with perhaps the exception of the foreign currency losses can occur with suppliers in our own backyard. However, time zone differences, cultural misinterpretations, faulty language translations, and logistical problems are all common challenges that must be managed for international sourcing to be successful.
Why do companies require assistance in Global Sourcing Activities ?
The challenge for many mid-sized and some large corporations is in acquiring the experienced resources to strategize, manage, and implement successful sourcing of materials and components in low labor rate countries. Typically the experience and knowledge required to support a successful transition to a foreign source is not resident within the current organization, and recruiting a Supply Management professional with the required experience is extremely difficult and expensive. Although many large multi-national corporations have created their own International Procurement Offices (IPO) in low cost countries, the financial commitment to staff and maintain an IPO is in the millions of dollars per year. Most mid-sized companies do not have the volume to justify, or financial resources to commit to an expense of this magnitude. http://www.faq-logistique.com/GCL-Logiguide-Vol10Num08-Low-Cost-Country-Sourcing.htm