Globalization and more competition make it harder for businesses to make money, so they must find ways to cut costs to stay in business. One such way is through low-cost country sourcing (LCCS). This article will provide tips on managing LCCS effectively, so businesses can maximize their savings while still meeting all their requirements.
- Examine the region’s political instability risk: Assessing the political risk when considering sourcing from low-cost countries is important. To get an accurate assessment of a region’s political stability risk, factors such as civil unrest and military conflicts should be considered. When figuring out if a region is likely to have political instability, it is important to look at the current government and how well it can keep control over various parts of the country.
- Recognize the underlying tax and tariff systems: Tax and tariff systems are an important part of managing low-cost country sourcing. Understanding the underlying tax and tariff systems in each country is essential to calculating the cost of goods from a given source accurately. Additionally, understanding the different tax regimes between countries can provide valuable insight into which markets may offer the most favorable terms for sourcing services.
- Analyze the value of quality control for company results: Companies need quality control processes to make sure they get what they want from their suppliers in terms of price and product quality. Throughout the production process, there should be checks, and the raw materials should be tested before the product is made to make sure they meet the standards. As part of ensuring quality, suppliers should also be judged on their qualifications, certifications, records of equipment maintenance, etc.
- Analyze the actual transportation costs: When sourcing from low-cost countries, transportation costs should be taken into consideration. To figure out if buying from a low-cost country is a good deal, it is important to look at how much it actually costs to ship goods. Shipping costs can add up quickly, so it’s important to compare the total cost of shipping goods when deciding where to get them.
- Think about the EOQ delta given the probable extended lead time: The Economic Order Quantity (EOQ) model is useful for estimating the optimal order quantity to reduce costs associated with sourcing services from low-cost countries. When considering sourcing from low-cost countries, the delivery lead time is a crucial factor to consider. If the lead time for delivery is expected to be longer than usual due to logistics or other factors, this could significantly impact the EOQ delta.
- Estimate supplier oversight costs: Estimating how much it will cost to keep an eye on suppliers is an important part of managing low-cost country sourcing. The cost of supplier oversight can vary a lot depending on the type of product and the risk that comes with it. When figuring out how much it will cost to keep an eye on suppliers, you must think about some important things. These include checking whether they speak the same language, what their culture is like, and how stable the local economy and government are.
- Calculate the cost if a supplier misses the deadline: When a supplier misses the deadline for a level of service, it can cost them in diverse ways. The most obvious cost is the time needed to get back on track and make up for any lost business due to late deliveries. When managing low-cost country sourcing operations, it is important to know what a supplier can do and set reasonable expectations for what they can do.
Low-cost country sourcing is an effective way for businesses to lower costs and make more money. There are some risks that could come with this type of sourcing, but they can be kept to a minimum by using effective risk management strategies, such as knowing a lot about the target market, setting up clear communication channels, and managing the working environment.