Businesses due to huge cost benefits look for low-cost country sourcing. While there are innumerable benefits associated with sourcing from a low-cost country, there are a few risks as well. As a business, you must carefully analyse the risks associated with sourcing goods or services from a low-cost country.
You should try to minimise the risks and, in some cases, create alternate supply chains so that your business operations do not stall due to any supply chain disruptions. In this article, we will discuss various risks associated with low-cost country sourcing and what businesses can do to minimise these risks optimally.
6 Supply Chain Risks of Sourcing from A Low-Cost Country
Here is a list of risks that you may encounter when sourcing goods or services from a low-cost country.
Production Problems
If you have opted for low-cost country sourcing, you may face production-related problems. The products that are supplied to you may be defective or do not conform to the quality standards. This can harm your brand reputation in the market. Therefore, when you hire a purchasing consultant, make sure that the expert understands your requirement regarding the quality standards.
Unforeseen Problems
Some risks associated with low-cost country sourcing are unpredictable in nature. For example, the country from where you are procuring your goods and services can increase the import duties or change some regulation that impacts your supply. This makes the entire process quite high-risk in nature.
Safety of the Product
When you procure goods from a low-cost country, the manufacturer to keep the manufacturing cost low may use low-cost materials. One example is that of the lead-tainted toys that had grabbed the headlines world over a couple of years back. To ensure that the products that you are selling under your brand are safe, you must put stringent quality control on your end also. This negates the low-cost advantage of sourcing a product from a developing country.
Geopolitical Impact
There is great volatility in the geopolitical arena. Therefore, when you are going for low-cost country sourcing, keep this important point in your mind. For example, most American businesses have invested a huge amount of resources in establishing a supply chain in China. However, recent political events have had a negative impact on these supply chains.
Shipping Costs
Businesses should also look at the overall cost of sourcing material from a low-cost country. They should include the administrative, shipping and transition costs. You can hire a local consultant who has a warehouse in your country. You can a consultant to procure goods for you and make them available at your doorstep. This will reduce all the problems associated with procuring and shipping goods by yourself.
Language Barrier
Language is another challenge associated with low-cost country sourcing. If you are not able to communicate what you want from the local supplier, the supplier may ship you the wrong goods. It can hamper your operations. You can hire a local purchasing consultant to overcome this challenge.
When you are negotiating with procurement companies, you must put forth a statement of responsibility for the procurement consultants. Make sure that the wording is simple, and the style is direct. This will help you to spell out those points where your procurement consultant must take complete responsibility. It includes safety, quality, timely delivery and cost of the products.