The topic of LCCS is fairly prevalent within supply chain circles with camps on both sides of the issue, so I was curious to read a recent cautionary article on the subject in Industry Week, which covered a new study by Boston Consulting Group. This also tied nicely to the comprehensive post written by Sean Delaney last week.
“”In their rush to source from China many companies are blindly walking into a strategic trap. The trap is thinking that sourcing from China will result in lower product costs, when in reality the supply chain dynamics will, in many cases, drive up overall costs and reduce profitability, “explained senior partners, Georgle Stalk Jr. and Kevin Waddell, in their report,” Surviving the China Riptide: How to Profit from the Supply Chain Bottleneck.”
The authors suggest looking closer to home in the US or Mexico and provide options to sourcing from China:
- Build “land-side” capacity at ports not yet overwhelmed by congestion.
- Explore shipping alternatives, such as air freight, “that may appear costly but may actually lower overall expenditures by reducing hidden costs.”
- Invest in “premiums” and “capabilities” — paying higher prices, for example, for priority service (“premiums”) or improving the company’s own abilities to move goods quickly and efficiently past or around congestion.
- Diversify supply with “multiple suppliers and supply points” or produce critical components and products domestically, accepting higher production costs as a tradeoff for lower supply-chain costs and reliable delivery schedules.
Very good points.
Supply Chain Management Review published a similar article in April called “Revisiting LCCS in a Demand-Driven World.” I wrote a summary on my blog:
Near-Shoring Private Labels
BTW, I really enjoy reading your blog.
Adam
Thanks for the comment, additional information and compliment, Adam!
It is absolutely true about hidden costs and other issues when sourcing in China. It is always some sweeping statements made that ” getting things from China is very cheap” without knowing the true picture
I have seen this general analysis a number of times. Perhaps analysis of the issues associated with differing levels of granularity would be of interest to others beside myself. Componets vs. finished goods, high obsolescence risk vs low risk, low value goods vs high value, high material cost vs high labor cost goods, etc.
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