Purchasers told to rethink low-cost sourcing plans

5 July 2006
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06 July 2006 | Paul Snell

Buyers need to be able to switch suppliers from country to country quickly and simply to benefit from low-cost sourcing.

That was the view of Professor Richard Lamming, director of the School of Management at the University of Southampton, at a low-cost country sourcing (LCCS) seminar in London last month.

Lamming said switching locations will maintain competitive advantage.

"Low-cost sourcing is not about a place or country, it's the process of being able to move quickly."

He said regions that offer low costs often enjoy an influx of foreign investment, followed by a local boom, which can then stop them being the cheapest option.

It is at this stage, he said, when the process of quickly changing suppliers to a new low-cost area becomes necessary. He said purchasers must check continuously to ensure the countries they are using remain competitive.

A survey of 100 purchasing managers and directors in manufacturing, conducted by procurement organisation Vendigital, found 57 per cent believed areas for low-cost sourcing remained competitive for one to two years. A further 20 per cent thought two to three years.

But Lamming disagreed: "A maximum of two years is hopeful," he said. "The market is more dynamic and competitiveness may be measured in months rather than years."

He said because buyer-supplier partnerships were particularly highly regarded in the 1990s, many firms forgot about the importance of switching their supply base to encourage competitiveness.

The survey found purchasers continue to look to traditional low-cost countries as their primary sourcing location. A total of 57 per cent chose China, and 12 per cent, the second highest amount, chose India.

The survey also quizzed procurement on the savings made from using those locations. It found India delivered average savings of 46 per cent, compared with 35 per cent in China.

Delegates were also reminded of the importance of considering the total cost of moving their supply base, including logistical expenses.


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