Companies are leaving a lot of money on the table in their sourcing operations, says Foster Finley, managing director at AlixPartners LLP, which specializes in helping companies better manage these expenses and find opportunities for savings.
When working with clients, AlixPartners looks at seven factors, Finley explains. These are: tariffs from origin country to destination country; exchange rates between origin and destination country; inbound logistics costs from origin to destination; inventory implications associated with that inbound leg, i.e. needing more buffer inventory for more distant origin points; manufacturing overhead in the origin country; the cost of raw materials in the origin country; and, lastly, the cost and availability of direct labor in the origin country.
Labor is the factor that primarily drives at lot of sourcing decisions, Finley says. “Companies tend to look at that to the exclusion of the other six factors. But it is when we put all seven of those together that sourcing becomes a controllable expense.” Making changes in terms of vendor partners and supplier or plant locations can have a dramatic impact on customer service, cost and reliability, he says.
Sourcing networks need to be regularly analyzed because things change so quickly in the global economy, Finley says. “If you source something from China today, that may not be the most economical strategy tomorrow, for any number of reasons – landed costs, time in transit, responsiveness, product quality or something else.”
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