Low-Cost Country Sourcing or LLCS is a system in which the suppliers move from a low-cost country by a business headquartered in some other countries where the costs are comparatively expensive. This system reduces the capital investment and maximizes the profits keeping all other costs equal. For instance, when a US-based organization imports raw materials from a Central American company instead of sourcing from a costlier US company, the organization would be able to get the sourcing at lower prices. This type of sourcing can be considered the best country sourcing.
If you are running an organization in the US, you should ensure that the low-cost country sourcing you are considering is truly low-cost. Listed below are seven tips that can help you ensure low-cost:
Try to understand the tariff and tax structures that you need to follow
Low-cost countries, sometimes, may provide net gain; sometimes they may not. It depends on the level of export transportation and tariff levels in the country from where you are trying to source your raw materials.
Conduct a real transportation cost analysis
Transportation through ships is indeed an economical option. However, the total cost analysis of domestic and low-cost country sourcing is also vital for the whole cost equation.
Take the EOQ delta based on a prolonged time
When the tariffs and the transport cost invalidate the advantages of low-cost country sourcing, the impact of prolonged lead times on Economic Ordering Quantity or the requirement for an increased level of Safety Stock in the Consumption country may lead you to a zero-sum environment.
Realize the importance of quality control
Often some companies find them in a situation when they are compelled to accept a lower quality product or invest in remarkable inspection resources at the time of product receipt. It can burden the savings given by a low-cost supplier.
Determine the potential cost if the supplier fails to meet the deadline of the services
Organizations that exercise Just In Time or JIT methods of supply chain management can look for critical components from the low-cost sourcing countries. A stagnant supply chain can cost more than low-cost sourcing. That is why a low-cost country is the best country sourcing for organizations of all sizes, big, mid-level, or small organizations. Therefore, you need to decide on the potential cost, if your supplier fails to meet the promised deadline.
Analyze the risk of potential instability in the region
Sometimes external and internal political unrests may affect the supply chains. Anywhere, from Latin America to Europe and Asia, the political unrest that the countries offering low cost can test your supply chains.
Project cost for having direct or indirect monitor suppliers
Senior procurement officials require an honest evaluation of the layers. They need to monitor, mentor, and audit the required low-cost country sourcing against domestic sourcing.
A Final Takeaway
Generally, low-cost sourcing is a sourcing system that can be deployed for simple components or reasonable consumer goods. For poor stitching on textiles, it is not important than a minor error on a printed circuit.
The education and skill level of the workers can help you determine the types and the products sourced from lower-wage currency countries.