| There is no denying that we are in a recession -- the | | | | the strategic sourcing department will have a |
| official claim came out in November 2008, stating that | | | | significant impact to the company's bottom line. In |
| the Recession started in December 2007. Most | | | | the above example, a meager 10% saving will |
| industries are bracing for the worst, re-adjusting the | | | | translate into 2% to 4% of improvement on the |
| sales figure during mid-quarter, so as to limit the | | | | Income statement! This is usually a fairly easy sell to |
| damage of a potential stock price plunge during the | | | | the CEO or general manager. |
| quarter financial reports. To add salt to the wounds, | | | | 3. Allowing the company to gain insight and develop |
| they are also facing a monumental task of controlling | | | | new sales channel in other emerging markets -- |
| raw material price, while minimizing the impact to the | | | | Globalization is a fact of life. No company can survive |
| consumers, already beaten down by high inflation, | | | | without a long term, global strategy. Sourcing from |
| stagnant job growth, and a gloomy economic | | | | LCC may allow the company to take the first step |
| outlook. Overseas, China Bao Steel recently agreed | | | | to achieve those objectives. |
| to an 85% increase from its steel supplier. This has | | | | 4. Improved supplier base means improved quality -- |
| sent a shockwave signal to the auto and construction | | | | LCC is no longer the synonym for low tech, cheap |
| industry. Further, Dow has jacked up the price of its | | | | toys, poor quality, and any bad reps that are |
| products by as much as 20% effective June 1, 2008. | | | | associated with LCC. The suppliers at many LCC, |
| Price increase to the consumer is imminent. | | | | especially China, are transforming into world-class |
| This, however, is the PERFECT time for companies | | | | suppliers. (see other blog: The China Supplier |
| to implement long term, Low Cost Country (LCC) | | | | Transformation And The Effect on Sourcing From |
| sourcing strategy. | | | | China) |
| | | | 5. Low risk supplemental sourcing strategy -- If sole |
| 1. Hungry supplier -- In a down economy, Sales | | | | sourcing from LCC is deemed too risky, a company |
| department is facing an uphill battle to improving the | | | | can start with dual sourcing from LCC suppliers, while |
| company's bottom line by generating more sales. | | | | maintaining the commitment with the current |
| Unfortunately, the general business environment | | | | suppliers. Though the financial benefits may not be as |
| nowadays has put a strangle hold on improving the | | | | significant, dual sourcing from a LCC will induce minimal |
| sales number. This, however, is true to MANY | | | | risk to the current process. This will allow time for |
| suppliers, who are hungry for new business, and will | | | | the company to evaluate and learn. Savings |
| go the extra mile to win new businesses. | | | | information may be acquired and extrapolated to |
| 2. Significant impact to bottom line -- For a company | | | | determine the viability of LCC sourcing. |
| that has a revenue stream made up mostly by selling | | | | A tough economy may be a godsend for companies |
| physical products, the cost of goods sold (COGS) is | | | | trying to establish its presence for global |
| generally in the 20% to 40% range, industry | | | | procurement. Wise sourcing professionals shall use |
| dependent. With COGS being the largest contributing | | | | this golden opportunity to push for global sourcing |
| factor to the SG&A, any savings realized from | | | | structure. |