Question

Select a finished good you are familiar with that is sourced from a low cost country. Develop a total cost value proposition to evaluate the potential of continued sourcing from this country. For each of the cost components (material, manufacturing, transportation, packaging, inventory, handling, damage, risk, security) identify the major trade-offs associated with sourcing locally versus sourcing from this low-cost country. Based on your assessment of the current environment in your chosen country, what is the direction for each of these cost components over the next five years, and what is the likely trend regarding continued sourcing from this country.

Answer 1

Select a component or finished good that you are familiar with that is sourced from a low-cost country. Develop a total cost value proposition to evaluate the potential of continued sourcing from low-cost country.

The Engine Piston a key component in an automobile from China

The cost advantage for procurement from a low cost country (China) is as much as 50% when compared to local manufactures.

The major tradeoffs are

• Distance and cost.
• Logistics capability,
• Location and
• Trade regulations.

Product/ Material quality.

When goods are purchased from half-way around the world, the factory-gate prices may be lower, but long and unreliable delivery times increase both costs and supply chain risk

The increased global competition will drive many firms.

Sourcing from low costa country will reduce manufacturing cost.

Material and other factors of production i.e. water and power will be less costly because of the less developed markets.

Seeking out suppliers in low cost countries will increase competition among existing suppliers, thus reducing material cost.

The low cost country sourcing will further increase a company's exposure to state-of-the-art product and process technologies