Don't write off low-cost sourcing, says report

11 March 2009

11 March 2009 | Martha McKenzie- Minifie

Buyers have been urged not to abandon low-cost country sourcing (LCCS) too quickly in the downturn.

A report published yesterday by the Boston Consulting Group (BCG) said although many factories in China and elsewhere in Asia are closing, buyers should not overestimate the reduction in supply from low-cost countries.

Another study, by consultancy Ernst & Young, found 46 per cent of 337 firms surveyed had narrowed their supplier base to obtain better terms, favouring domestic vendors at the expense of overseas sourcing (News, 5 March 2009).

The BCG report, Sourcing Consumer Products in Asia: Managing Risk--and Turning Crisis to Advantage, said factory closures represented only a small percentage of total capacity and weaker players are being picked off by the slowdown. The larger, more efficient factories continue to operate, while lower production costs and labour rates were cited as continued benefits of LCCS.

However, the study warned purchasers that the ability to source from low-cost countries effectively and efficiently was not a guarantee, as tough economic conditions and declining demand for some products would probably see more suppliers collapse.

"To prevent a disruption in supply, therefore, companies must assess the risks in their supply base as well as their options for alternative sources," it said.

SMmar2009

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