the high cost of low cost country sourcing - jeffrey collins conclusions
TRANSCRIPT
The High Cost of Low Cost Country Sourcing Research Conclusions
Jeffrey CollinsChief Procurement Officer
[email protected] Office: 248.646.7233
Mobile: 248.990.5195
Low Cost Country Sourcing Evolution - Lowest Piece Price to Lowest Risk Assessed Cost
Cost Savings SustainabilityUnknown Predictable
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Comprehensive
Lowest Piece Price
“Three Bids and a Cloud of Dust”
Lowest Sustainable Cost
Lowest Delivered Cost Plus:Quote / Cost Analysis
Raw Material Purchased Parts Direct Labor Depreciation Overhead Profit
Lowest Delivered Cost
Lowest Piece Price Plus: Freight Duty Packaging Inventory Costs
o Obsolescenceo Inventory Carrying Costs
Incremental Buying Costs
o Regional Officeso New Supplier Development o Incremental HQ travel costs
Lowest Risk Assessed Cost
Lowest Sustainable Cost Plus: Risk Assessments for: Customer Perceived Risks
o Quality Concernso Personal Safety Concernso Corporate Social Responsibility Concerns
Part Riskso “Travelability” o Legal / Intellectual Property Riskso New product development cycle time
Country / Regional Riskso Politicalo Laboro Currencyo Infrastructure
Supply Chain Riskso Raw Material availabilityo Supplier Support of Customer’s Engineering, Manufacturing, etc. o Supplier Interface / Communications concerns ex. Finance, Material Control, Purchasing
Loss of traditional supply base knowledge and support
Domestic Auto Industry Today
Risk Levels(Orders of Magnitude)
• Risk level 1 – buyers / suppliers located within 250 miles • Risk level 2 – buyers / suppliers located > 250 miles, but within the same region• Risk level 4 – buyers / suppliers in adjacent regions • Risk level 6 – buyers / suppliers in regions that are not adjacent; requiring over sea shipments
Lowest Delivered (and Sustainable) Cost - Conclusions • Not all parts / assemblies / systems are candidates for “Low
Cost Country” sourcing• Piece price alone is a poor indicator of “Low Cost”
– Purchasing organization performance metrics must be based on Total Delivered and “Risk Assessed” Cost and integrated with those of other departments / functions
• Quote and Cost analysis provides the basis for forecasting future quality and delivery issues / concerns
• Cross-functional assessment of “Risk of Distance” issues is essential to thoroughly evaluate all potential risks to on-time and quality delivery of goods over the life of the sourcing relationship
• Risk, as an element of piece price, increases by orders of magnitude as distance between supplier manufacturing plant and using customer plant increases
• LDC sourcing is often “in region”