Benchmark Report on Low Cost Country Sourcing (LCCS)

August 1st, 2006 at 07:44am Jason Treida - Iasta

The website www.eyeforprocurement.com has just released a benchmark study (Sign up here) regarding Sourcing in Low-Cost Countries which I found to be very interesting. Nothing in the report is overly surprising but it does reaffirm a few things that we tend to hear in the market and it is nice to see studies backing up some of these claims. Everyone can have their own opinion but it is a lot more effective when you have a Benchmark Report to back up these discussions.

The majority of the respondents are manufacturers in the electronics and hi-tech sectors so when reviewing this report you have to take that into consideration knowing that many service, healthcare, foodservice, and other companies might not and probably do not have the same opinions. Since most manufacturing companies are price driven they are required to be extremely competitive influencing their decisions when deciding whether or not to offshore production to lower their material and labor costs.

We know the historical preference was to outsource in Mexico and now China for manufacturing and India mostly for services as this report confirms but it will be interesting to see future trends to other countries possibly in Latin America and Eastern Europe. Future decisions will be based on the rising fuel costs and the possibility of continued turmoil in the Middle-East and Asia.

Some of the Major Risks for LCCS mentioned include unreliable quality and delivery. It is not uncommon to hear feedback that when outsourcing to a low cost region the new supplier will not mention any possible delays in delivery or supply issues until it is too late and noticed by the customer. Jason Busch commented on an article by Purchasing Magazine that touched on this as well.

Out sourcing to Low Cost Countries can be a wise business decision in some cases but you just need to make sure you have done your homework and have a back up supplier ready for your critical items as unexpected issues can come up.

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Entry Filed under: General, Global Supply Issues/Risk, Suppliers