Best Cost Country Sourcing

BrainNet recently released a mini white-paper on Best Cost Country Sourcing The Evolution of Low Cost Country Sourcing that had an interesting take on Low Cost Country Sourcing. According to the author, cheap labor is better suited to cheap products and cheap services and not necessarily an advantage for the premium products that industrial countries are known for. Personally, as I succinctly stated in a comment over on Supply Excellence, I believe the answer is Home Cost Country Sourcing. Finding a way to to get the best value from a total value management perspective (where total cost of ownership is taken into account alongside quality value metrics such as on-time delivery, reliability, etc.) while sourcing from suppliers in your own country. But I digress.

I particularly agree with the seventh and ninth paragraphs (the third paragraph on the second page and the second paragraph on the third page):

Decision makers often decide too easily that new markets such as India and China are going to be the ultimate attractive sales markets and that a local production plant is the best approach to capture the labor cost advantage there quickly. buying power is still limited in these regions but will definitely increase over time, so it is a “no brainer” that everyone can agree to quickly. The CPO is happy too because every product produced and sold is declared as low cost country volume. In other words, nothing has changed fundamentally in the organization but the so-called shifted purchasing volume has increased. Curiously, even the raw material and components may be sourced from high cost countries and assembled abroad. The right terminology for this approach would be “High Cost Country Sourcing” instead of “Low Cost Country Sourcing”.

It all started with the buzz words “Low Cost Country Sourcing”. This wording, put politely, misses the point by a long shot. Criteria such as quality, logistic risks, intellectual property risks among others, have to be considered and evaluated thoroughly to assure that these measures are successful. Establishing innovations on the supplier side as a competitive advantage and managing your new suppliers actively are only two from many important success factors.

In other words, LCCS alone is not the answer, not a quick fix, and not a saving grace to a flailing company. In order for a company to be assured of value in their global sourcing initiatives, they at least need to progress upward to a BCCS initiative, understand the advantages and disadvantages of each of their options, and understand that such initiatives will take considerable time and effort. It’s not just the flick of a switch.