East versus West
27 November 2008 | Steve Bagshaw
By Delwyn Cummack
In this issue's supplement debate, Alec Pettigrew and Robin Jackson discuss whether low-cost country sourcing (LCCS) is the cheapest option.
Pettigrew, managing director of Asian Sourcing Link, argues: "The benefits of LCCS are two-fold – not only are the costs of the products lower, but it also allows the company to get more for its money."
On the other hand – Jackson, CEO of ADR International, contends: "Sourcing from Western countries is not only likely to be less risky and offer a potentially closer relationship with the supplier and more chance of innovation – it may also be cheaper."
What do you think?
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With the economic downturn and companies trying to maximize their efforts to improve their margin are definitely keeping their options open for low cost country sourcing considering the fact that it provides the advantage of Low material cost and Low labour cost. But the challenge lies in accepting and negating the risk factors associated in these low cost locations.
Knowledge based Sourcing:
I definitely agree with Jackson’s point – only a strong supply base with strong supplier relationship would make Low cost country sourcing to be the best cost option. To add on to it, knowledge based sourcing – understanding the process, people, technological capability of the suppliers selected and working closely with these suppliers to get the needed quality and the lead time – would be essential. Low cost country sourcing can prove to be cheapest only until companies accept the trade-off and understand the realities and work on the buyer-supplier relationship for a long term strategy to save significant cost.
I agree with Roselin the bottom line in any vendor relationships (low cost country or not) is communication, the clear understanding of mutual objectives and performance management and feedback.
If these are lacking in local vendor relationships then obviously they will be also lacking in overseas vendors. The aspect of cultural norms and social practices are particularly relevant here, in terms of “common knoweledge” and what is normal in a buyer/vendor relationship of different countries, markets or industries. Distance buyer/vendor relationships are strongly affected by different times zones, not understanding expectations, or misunderstood expectations, or expectations influenced by cultural norms; and this can only be resolved by open and honest communication methods.