[The Jolt] Sourcing right: an LCCS checklist
Published: Apr 02, 2009
Global - Sourcing from low cost countries has re-emerged as a pro-strategy critical to the health of many companies in developed nations. A top Zycus executive lists these criteria that must be mapped when looking to procure from a low cost country.
Low cost country sourcing took a hit when quality issues in the food and toy industries emerged out of China in 2008, resulting in the affected companies spending precious dollars on product recalls and even more on the damage to their brand.
However with the crash of the financial markets and plummeting demand, companies are relooking to LCCS as a means of saving money on manufacturing. "These nations have a huge supplier base that can cater to a wide range of products and services to companies across all business verticals," says Anurag Dixit, VP of marketing at Zycus in a recently published whitepaper. "The primary reason these locations have become a huge offshore sourcing destinations is that they offer high-quality products at much lower costs."
Dixit however lists seven key criteria that must be considered when looking to procure from LCCS. These are:
- A clear strategy in place with respect to sourcing from these locations. A reliable market intelligence system is a definite requirement to help identify opportunities.
- Evaluate the cost benefit ratio by considering the value of item to be sourced, currency conversion rates, logistics support and so on.
- Conduct a complete supplier validation exercise by way of onsite visits, capabilities and financial health.
- Appoint a local resource to monitor supplier performance at all times. They can help implement your best practices to attain the desired quality levels and test the consignment prior to shipment.
- Diversify the sourcing basket by splitting the sourcing bases between multiple locations. This risk management strategy will help avoid any adverse impacts due to any reasons in a particular location.
- Keep some critical sourcing onshore to combat any unforeseen problematic developments.
- Continually map other suppliers to all sourcing opportunities.
Dixit says during his interactions with companies, it was clear that companies needed an effective supplier relationship management portal to maintain a vendor base irrespective of the geographical and cultural differences. This can be facilitated by making investments in IT systems that will allow procurement managers to search and consolidate potential suppliers who can cater to specific commodity requirements.
"The global sourcing business is in position to change for the better from current economic conditions," he says. "I am confident by the time countries emerge from these trying times, the sourcing practices will become more effective. Hence companies will need to adopt leading technologies and implement on a broader scale to attain higher and sustainable efficiencies."