LCCS interview Part 1

Today, we welcome Carl Greppin from Transpac Access. We took some time to ask Carl questions about Low Cost Country Sourcing to get details on some of the finer points of this process. Part II of this interview will be up tomorrow. There are widely varying opinions about LCCS and best practices, we welcome any additional comments on this topic.

1. There is still lots of buzz about low-cost country sourcing (LCCS).

• What should a company do to help decide whether to pursue LCCS strategies?

A company should thoroughly review everything it buys and determine which materials are best suited for LCCS.

Criteria include:
a) Savings – potential savings that could be attained
b) Experience – the experience that the LCC supply base has with providing similar materials to the West
c) Implementability – how easy it would be for the buyer to move materials to a new supply base

•Is it right for all companies?

Not necessarily. Some materials and services are better suited than others for LCCS. For some companies, such as those that provide services such as temporary labor in the United States, LCCS may not be a viable option.

2. Is LCCS only about using suppliers from other countries?

No – LCCS can also involve helping a company’s domestic suppliers use LCCS for their supply base.

3. I hear one needs to conduct in-depth due diligence on new LCCS suppliers. What does that entail?

Due diligence entails getting thorough information from suppliers on items such as English speaking and writing skills, experience with providing materials to the West, equipment, capacity utilization, other customers. Due diligence also entails conducting site visits to ensure provided information is correct, to inspect production and quality systems, and to determine if there is a workable chemistry between the buyers and the supplier.

4. What additional costs do I need to consider when determining whether to pursue a LCCS strategy?

There are a number of additional costs to consider. International transportation costs can be large, depending on the type of material being imported. Inventory carrying costs can be a factor since the buyer’s Inventory Days will become higher. There will be customs and brokerage costs. And there will be additional administrative costs, especially in the first year, as the buyer spends effort to learn how to operate with LCCS suppliers.

5. What are the “hot” low-cost regions now?

Right now, the “hot” low-cost regions are China for manufactured materials and India for services.

6. Are some regions easier to work with than others?

Chinese suppliers tend to be responsive and reliable. Chinese suppliers are also becoming adept at dealing with buyers from the States, so this is currently a region that is fairly easy to work with.

4 Responses to LCCS interview Part 1

  1. Just a couple of unrelated thoughts…
    On 1 above, I also think it’s critical to examine your part mix. Are we talking high mix low volumes? High volume low mix? Do your parts have a lot of ECO’s (LCCS is not usually a good fit when there are a lot of design changes). Is labor a big chunk of the total part cost? Does the part fit in a shoebox (because those are the best parts to ship from a freight perspective)? Are there any new trade agreements or tariff schemes coming down the pike that will significantly impact the savings?

    What is hot? I’d actually counter and say China is on the back half of the curve. Sure, there is tremendous sourcing going on from China to the US but which markets are really starting to boom? Everyone seems to be talking about Vietnam and India and India for manufacturing (in addition to services)

  2. Good article. I’m in the training biz (or should I say training space?) on international supply management issues. Can’t find much I disagree with in transpac access’s interview. Only comment I would have is that if the goods are airfreightable, the difference between sourcing on your own continent and going across an ocean is not very significant.

  3. I agree with Point No 3 that Lot of extensive audit is require to access supplier capability ,utilazation ,and understanding of English,
    Chiniese supplier,s are still facing problem in understaing and talking in English ,
    Indian suppliers are well comfortable in Speaking & experessing in English
    So India is Most Suitable country for LCCS

  4. Dear Sir,

    I got your details from the internet. We are looking for great assistance in this mind field of suppliers in China. I cannot get a straight answer from any of the suppliers. Can you tell me how much it will cost to verify the suppliers in Mainland China and HongKong, America and Europe too? We need to find a company that is legitimate; legal has proof that the brand name like Nokia has certificates to prove they are authentic. None of suppliers can give me none of the information I request. They keep trying to sell their own products to me, or they say OEM is the same as brand names like Nokia from Finland Euro spec, when it is clearly not. I have a lot of customers who wants the real thing not fakes or copies. Can you help? Kindly tell me the fee required.

    Kind regards

    Yvonne Khan

    Easy Phones 2 Go Limited

    +44 0 7960148428

    +44 0 2086549064

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