The Evolving Landscape of Low Cost Country Sourcing

One of my colleagues was having a year-end discussion with a client of ours about LCCS and their exposure to China. This client is a global company in a fast-paced industry, and sources a lot of its direct product from China, sometimes on an expedited basis.

The client expressed concerns about future total costs and lead times of sourcing from China – and rightly so, given what is happening in China, combined with likely increased energy and logistics costs around the world.

That raises an interesting question that you should be thinking about right now, regarding dealing with your own LCCS program risks: Could the U.S.A. be the next frontier in Low Cost Country Sourcing? That’s not so crazy as it may sound.

The logic can be boiled down to a few key determinants: (a) the relatively low value of the U.S. dollar compared to other key currencies, (b) wage inflation in many of the “current” low-cost countries, (c) a realization that there is a Total Cost of Ownership (TCO) implication to sourcing materials and (even services) from half-way around the world, (d) longer supply chain timelines and less responsive supply chains that span the world, compared to within-NAFTA or within-USA options, and (e) risk management differences between “local” and “offshore” supplies.

This just reinforces a theme that regular readers of this blog should be familiar with: doing strategic procurement well requires, among other things: (a) a fact-based approach – one that is based on thoroughly understanding current reality and anticipated trends, not just history; (b) it deserves an investment in the appropriate skills and enough of the right resources to develop and execute relevant strategies; and (c) it requires constant monitoring and adjustment to optimize results in an ever-changing world.

Are last year’s low-cost countries the right answer for the future? Maybe not.

The U.S. as the next frontier for low-cost country sourcing? Why not? Are you ready?

SC
MR