Global Supply Chain Group’s Guide to Low-Cost Country Sourcing
The Debate on Low-cost Country Sourcing (LCS) Rages On
It appears that the trend to outsource to low-cost foreign lands has run its course, and now most countries are ready to bring back the work onshore. On the other hand, it also appears that despite the rhetoric of the politicians, and symbolic gestures of the governments, companies continue low-cost country sourcing with almost total disregard to the first trend. What is driving these two counter-trends and which one will eventually win out? There are no simple solutions any more. The answers will require a lot more sophisticated understanding of the global supply chains.
Past Is NOT a Good Guide To The Future of LCS
If you are serious about your supply chain, you cannot disregard low-cost country sourcing as an outdated strategy. On the contrary, you need to be a lot more informed and sophisticated about this strategic tool than you could be in the past.
A Practical Guide on LCS Primarily for Practitioners in Large Corporations
This guide is for those board members, CEOs, C-Level executives and supply chain executives who have a direct role in low-cost country sourcing decisions. Other people who might be interested in this report are international economists, globalisation experts and academics interested in international trade of goods and services.
The Story of How it All Started For Us
The basic fundamental equation has not changed since we worked on our first low-cost country sourcing project in 2001. That client paid us a sum between $100k and $1M for the project assistance, and we amassed significant first-hand knowledge of the risk-reward balancing activity related to low-cost country sourcing.
Our first guide to low-cost country sourcing was written in 2005, and since then the risks and rewards continue to change every few years. As the so-called low-cost countries become more sophisticated, some risks disappear from the equation, while new risks take shape. Rewards continue to shrink for some countries. but new low-cost countries open up on the horizon, as a result.
The Purpose of This Report
On the whole, after a number of projects, we have found that while all management teams are aware of some of the risks, and some of the rewards – only a few management teams can compile a current, prioritised and objective view of all the risks and rewards.
Risk assessment is a matter of perception that is heavily influenced by some of the most recent experiences and press reports. Some risks can magnify in perception while others, more relevant risks, may not even enter the discussion.
On the other hand, the rewards are frequently over-valued, or under-valued.
The purpose of this report to bring objectivity, currency and completeness to the low-cost country sourcing decisions in your company.
How To Maximise Your Benefits From This Guide?
Think of this report as a guided workshop on weighing all the risks and rewards with adequate backing of relevant data sources and analytical mythologies so that you can defend your decision in front of the most demanding board of directors or shareholders. You cannot substitute this guide for sound decision making – it will act as an aid to making sound decisions pertaining to low-cost country sourcing.
Make Better Low-cost Country Sourcing (LCS) Decisions
In general, better decisions lead to better outcomes for the companies, and for the individuals. Quality of the decisions depends as much on the process, as it does on the information that feeds into the decision. In today’s world, we are not short of information. In fact, quite the contrary, we are so overwhelmed with the information from all directions that the process can suffer as a result. For this reason, a structured process is a must for critical decisions such as this one.
Be Able To Robustly Defend Your LCS Decisions
Almost every controversial decision such as low-cost country sourcing is open to constant challenge before, during and long after its implementation process. People opposed to the decision, or whose interests it threatens will challenge the data, the process, and even the people making these decisions. Unless you have a clearly articulated and agreed process in the beginning, and this process is rigorously adopted all the way through, your company and your team will find it difficult to defend the LCS decision.
Keep an Auditable Record of Every LCS Decision and its Rationale
Every decision has outcomes that survive and get scrutinised for a long time after the decision is made. Third parties such as banks, wall street bankers and consultants can put their own spin in the absence of a clearly articulated auditable record of the rationale.
Keep Track of the Decision-making Factors and be Alert to Changing the Decisions
As the circumstances change, you may need to revisit your LCS decisions and choose to change the countries or even reverse the offshoring decision. If you have a clear model of the data and analysis that outlines all the factors on which your decision was originally made, you could easily update the model with fresh data and factors and revisit the decision.
Substitute Consultants With Consultant-Like Reports
Use exactly the same frameworks that were used in reports costing hundreds of thousands of dollars for LCS decisions. If you face a low-cost country sourcing decision or are likely to face one, keep this report handy to cover all aspects of the process. If your team is showing hesitation, or jumping to a conclusion and you want to guide them through a step-by-step fact-based decision-making process this report will help you with structuring the decision criteria.
If you are already considering using consultants for the process, but want to stay in charge of your project then this guide will help you keep your consultants (or internal teams) on track.
Clarity, Structure, Frameworks
Prove your point with ease and finesse. Get out of opinion-based controversial discussions. No decision arouses as much passion in a company as the sourcing and outsourcing decision. And when these involve foreign countries the passion becomes inflamed almost in every situation.
Imagine the situation in your company at the LCS decision-making time. Everyone wants to be part of the decision and has their own opinion. Most of them will stick to it, even in the face of countervailing facts. Everyone digs out just the right facts to bolster their own opinion and it becomes a difficult debate between a variety of opinions.
How do you make sure all the relevant facts are dug out and brought to bear on the situation? How do you get the team to agree on a single decision in such a situation? How do you make sure that the decision does not come back to bite you one year or three years later?
Only if you had a way to bring everyone to the same conclusion. You wish there was a way to make sure that the decision-making process is as sound and uncontroversial as possible. You want to make sure that all the relevant data was researched and analysed properly and recorded for an auditable trail. You want to make sure that the blame does not fall on you for any reason whatsoever.
De-risk to Win
If you want to de-risk the decision and keep your sanity at the same time, you will need some help. Unfortunately, it is not so easy to employ consultants at the drop of the hat in this post COVID era. And, even if you do employ consultants, you still want to make sure that you do not allow them to run-away with your project, cranking up highly expensive billable hours while training their novice graduates at your expense.
We have seen these kinds of situations so many time since that first LCS project in 2003. Old established friendships are tested, and boardroom camaraderie is deeply challenged when two or more camps emerge with rival opinions. Low-cost country sourcing is never easy to strategise or implement. Boards and management teams who navigate this journey successfully have one thing in common – an ability to have a dispassionate look at the decision.
So, How do they achieve that? The secret is given in this report based on real-life case studies from decades of experience in global supply chains.
Best Practice LCS Parameters for the Key Categories
This guide outlines the best practices for low-cost country sourcing in categories as diverse as Direct Materials Sourcing, Production / Assembly sourcing, Indirect Materials / Services Sourcing, Logistics Sourcing, and Services Sourcing.
Unique and Proprietary Frameworks
The report encompasses the unique and highly useful framework developed by Global Supply Chain Group to cover each and every relevant factor for low-cost country sourcing decision and its implementation. This framework is generally only available to our clients who engage our services for low-cost country sourcing projects and pay thousands of dollars of consulting fees.
Practical Implementation Oriented
Because Global Supply Chain Group is almost always engaged in the implementation of the strategies we recommend, this report has a very robust implementation section focusing on our three-step implementation methodology for low-cost country sourcing.
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