Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

I’ve just read the umpteenth recent article saying that buying from China is on its way out. All the articles I’ve read have a grain of truth in them but suffer badly by being far too general. As I see it, China was never the right place for some purchases and will be the right place for others for a long time to come.

The articles need a framework to differentiate between types of purchases. Here’s mine.

I divide purchased goods two ways. The first way is by forecastability. Here I use the terminology originated by Marshall Fisher in his classic analysis “What is the right supply chain for your product?” He divides the products your company sells into two categories. One category he calls “functional” products. Those are easily forecastable and change relatively little from year to year. He uses bleach as an example. The second category he calls “innovative” products. Those are new products being brought to market. There is no competition (a good thing for sellers) but they are essentially unforecastable … a bad thing for buyers trying to support that product. Examples are fashion goods, some innovative cars and newer computers.

His point is that buyers need different supplier selection criteria for the different categories. For innovative products, he believes flexibility is more important than cost. If you can’t ramp up quickly you lose highly profitable sales. If you can’t ramp down quickly you write off a lot of inventory. And, you can’t afford a long transit time.

The second way I divide purchased goods is by what I call “economic density.” Simply put, what is the value of the purchased goods per kilogram? You can afford to fly high economic density goods but low density goods have to move by surface transport, usually ocean. One thing to keep in mind here is that there is a concept called “dimensional weight” where the freight costs of some goods is based on their physical volume, not weight. That’s the reason why laptop computers move by air from China to the US but desktops are usually assembled in North America.

Putting those two methods of division together gets the consultant’s favorite graphic: a two by two matrix. The best country and logistics selection strategy depends on which quadrant you are in.

Each quadrant requires a different strategy if an organization is to extract maximum value from its supply chain. Tomorrow’s post will discuss each quadrant in detail.

Thanks, Dick.