Despite recent interest in 'near-shoring' key sourcing categories, interest will continue in low cost country sourcing in 2009 as US and European businesses seek out strategies for driving costs out of their supply chains, according to supply chain software and service provider BravoSolution.
Low cost country sourcing (LCCS), a long-time staple of the supply management process has recently come under fire as a short-sighted and potentially risky sourcing strategy due to quality and volatility concerns. Many sourcing professionals have begun to shy away from LCCS, fearing that low quality production standards will negatively impact their brands.
But, according to Guillaume DeRoquefeuil, the Director of BravoSolution's Shanghai office, this perspective fails to account for recent developments in many low-cost countries. "We are seeing a rapid development of highly skilled labor and innovative techniques on the part of low-cost countries that want to remain competitive with the West," he says.
Problems with production--who's to blame? One of the most serious blows to the legitimacy of LCCS was struck by Mattel's 2007 recall of 1.5 million preschool toys because of lead paint used in production by one of the company's suppliers in China. DeRoquefeuil maintains that, despite these high profile cases, the perception of low process standards in Asian low-cost countries is undeserved. He points out that China in particular is moving quickly to raise standards for workers and factories that operate to EU and US standards.
"Understanding your local supply base, and putting a system in place to measure and monitor those suppliers on an ongoing basis is incredibly important to your LCCS efforts," says DeRoquefeuill. "Without an employee or trusted advisor routinely monitoring conditions at your LCCS facility, you cannot make sound supply management decisions."
The challenges for LCCS in 2009: Global concerns such as volatile energy prices, political alliances and US trade policy must all factor into a sound LCCS sourcing strategy. For example, a high cost of transportation could mean that although manufacturing a product in Taiwan is cheaper, production in Mexico is a more viable choice due to the lower cost of shipping from Mexico.
In 2009, as the credit crunch continues to bite, sourcing professionals will need to juggle the conflicting demands of price pressure that may necessitate LCCS sourcing strategies, with brand protection, which requires very high quality standards. As China and India encourage their larger enterprises to become global champions capable of moving higher in the value chain, supply managers may see both priorities coming together. As the volume of imports in both products and services grow and their quality rises, increasingly sourcing from these low-cost countries becomes the smart choice as part of an overall global sourcing strategy.
Overcoming the challenges of LCCS: Despite the demonstrated savings potential of LCCS, many businesses still lack a comprehensive strategy for putting a viable LCCS program in place.
BravoSolution helps mitigate risk involved with emerging markets with supplier visibility and management. The company provides support to its clients at any stage of LCCS maturity. With local consultants placed in the client's country as well as in their LCCS targets, BravoSolution is able to support a sourcing or vendor management program with a local team in the same time zone, speaking the same language, who can support the business process goals, as well as working with a consultant based in the low cost country to carry out the operational hands-on work.
"With careful planning, our clients are able to achieve significant value from their LCCS initiatives," says DeRoquefeuil. "Our support allows our customers to maximize value from their LCCS efforts while avoiding the common pitfalls."
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