by David Bush
April 12, 2007
Today, we welcome Carl Greppin from Transpac Access. We took some time to ask Carl questions about Low Cost Country Sourcing to get details on some of the finer points of this process. There are widely varying opinions about LCCS and best practices, we welcome any additional comments on this topic.
1. There is still lots of buzz about low-cost country sourcing (LCCS).
• What should a company do to help decide whether to pursue LCCS strategies?
A company should thoroughly review everything it buys and determine which materials are best suited for LCCS.
Criteria include: a) Savings - potential savings that could be attained b) Experience – the experience that the LCC supply base has with providing similar materials to the West c) Implementability – how easy it would be for the buyer to move materials to a new supply base
•Is it right for all companies?
Not necessarily. Some materials and services are better suited than others for LCCS. For some companies, such as those that provide services such as temporary labor in the United States, LCCS may not be a viable option.
2. Is LCCS only about using suppliers from other countries?
No - LCCS can also involve helping a company’s domestic suppliers use LCCS for their supply base.
3. I hear one needs to conduct in-depth due diligence on new LCCS suppliers. What does that entail?
Due diligence entails getting thorough information from suppliers on items such as English speaking and writing skills, experience with providing materials to the West, equipment, capacity utilization, other customers. Due diligence also entails conducting site visits to ensure provided information is correct, to inspect production and quality systems, and to determine if there is a workable chemistry between the buyers and the supplier.
4. What additional costs do I need to consider when determining whether to pursue a LCCS strategy?
There are a number of additional costs to consider. International transportation costs can be large, depending on the type of material being imported. Inventory carrying costs can be a factor since the buyer’s Inventory Days will become higher. There will be customs and brokerage costs. And there will be additional administrative costs, especially in the first year, as the buyer spends effort to learn how to operate with LCCS suppliers.
5. What are the “hot” low-cost regions now?
Right now, the “hot” low-cost regions are China for manufactured materials and India for services.
6. Are some regions easier to work with than others?
Chinese suppliers tend to be responsive and reliable. Chinese suppliers are also becoming adept at dealing with buyers from the States, so this is currently a region that is fairly easy to work with. 7. What about language issues? Americans generally only speak English.
For India, suppliers tend to have good written English skills. Spoken English can be difficult because of different accents and because of poor telecom connections. A US buyer unfamiliar with speaking with people from India will need perhaps 5 or 10 hours of experience speaking on the phone with people in India before finding it easy to communicate by phone.
For China, suppliers tend to have working written English skills. Email serves as a good medium for communication. Phone discussions are more difficult – Chinese suppliers may have poor English skills, and cultural issues may preclude a meaningful conversation (e.g. a Chinese supplier may say “yes” to mean “I hear you” rather than to mean “I agree”).
8. Are there common “red flags” we should know about before selecting a LCCS supplier?
A big one is if the supplier has a lack of experience providing material to the West.
9. When a company works with a 3rd party vendor to help identify, qualify and select a LCCS supplier, what range of deliverables should they expect?
The depth of service varies depending on the needs of the buyer. A buyer new to LCCS sourcing may want the 3rd party vendor to handle.
a) Getting information on suppliers through Requests for Information b) Eliciting quotes c) Conducting preliminary site visits d) Hosting US buyers to visit finalist suppliers e) Helping conduct final negotiations f) Helping with design g) Conducting first part approval h) Conducting production run quality audits i) Arranging transportation to the US j) Arranging customs clearance k) Arranging transportation from Port or Entry in the US to buyer site
10.What happens if something goes wrong? Can a 3rd party vendor help?
The 3rd party vendor can definitely help, especially if the buyer is new to LCCS sourcing. The 3rd party vendor can work with the supplier or the shipper to resolve production and delivery issues.
11. Are their commodities that should rarely be sourced via a LCCS supplier?
Commodities that are less frequently sourced are those that are expensive to ship because they cube out quickly or because they are very fragile, those that have short lead times, and those that are low volume and require frequent design modifications.
Thanks for your thoughts, Carl!