For decades, low-cost country sourcing (LCCS) has been one of the most popular sourcing strategies. Employing suppliers that operate on leaner budgets than those found domestically has been an obvious choice for organizations wishing to reduce operational expenses and make greater returns on investment. According to a recent IDG report by Simon Ellis, LCCS should be thought of as a shortsighted strategy for the long-term. It is clear that suppliers from low-cost countries are evolving and that they should not be discounted when it comes to the global sourcing of higher-caliber products. If an organization has a 'mature' procurement department that has experience in identifying and working with suppliers globally, then a consultancy can act as an adviser and provide the support both technically and based on the specific needs of the organization. Global concerns such as increasing energy prices, political alliances and the import legislation of bodies such as the EU can also significantly affect how an organization sources.
LCCS loW-cost country sourcing: the past, the present and the Future? For decades, low-cost country sourcing (LCCS) has been one of the most popular sourcing strategies. Employing suppliers that operate on leaner budgets than those found domestically has been an obvious choice for organizations wishing to reduce operational expenses and make greater returns on investment. In the UK, there doesn’t seem to be an industry that hasn’t benefited in some way: from labour-intensive manufactured products made using Chinese labour to call centres staffed with low-cost English-speaking workers in India and IT work performed by low-cost programmers in both India and Eastern Europe. H owever, according to a recent IDG report by Simon Ellis, LCCS should be thought of as a shortsighted strategy for the long- term. Ellis suggests that the focus shouldn’t be on LCCS, but on Profitable Proximity Sourcing (PPS), which encourages organizations to look at “balancing cost and service, with greenness or sustainability really do understand the extent of US consumer worries and whether they actually adhere to the standards required. This type of high-profile scandal is extremely damaging to low-cost countries, even though in this case it was the responsibility of Mattel to stipulate what processes should be used and to regulate their suppliers. When selecting increasingly playing a role in the decision making process.” Examining suppliers in low-cost countries, Western organizations can be guilty of the supply chain in this way certainly shows that the initial savings perceiving Asian suppliers as having low standards, therefore opting associated with LCCS — without considering whether there may be a to source from Eastern European countries. In fact, US imports from more cost-effective and ethical alternative in the long-term — can blind European low-cost countries have begun to outpace those from both organizations. But this fails to take into account the developments and Asia and the Western Hemisphere in the noughties (Journal of Supply innovations that the countries that provide LCCS are undertaking, and Chain Management, September 2007). that still make them excellent options for organizations in the West. LCCS = Low Standards? Problems with Production: Who’s to Blame? However, this perception of low process standards in Asian low-cost This is not to say that there aren’t problems with sourcing from LCCS countries is undeserved. Countries such as China are becoming suppliers, and there are instances when problems arise, particularly in evermore competitive as training schemes for labourers are now terms of the quality control of materials. For example, in August 2007, producing more highly skilled workers and factories that operate to EU Mattel’s Fisher-Price division announced that it was recalling 1.5 million and US standards, and all still at lower costs than Eastern European production can deliver. Even tasks such as high-tech laboratory work, suppliers from low-cost countries are which were previously perceived as being too technical for these countries, are increasingly being catered for. At the end of September evolving and should not be discounted 2008, Huawei, a Chinese firm specializing in telecoms solutions, had more than 96,000 employees, of whom 44% were dedicated to research when it comes to the global sourcing and development. This is just one example of a supplier from a low-cost country competing on an international level and driving innovation within of higher-calibre prod
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"LOW-COST COUNTRY SOURCING: THE PAST, THE PRESENT AND THE FUTURE?"Please download to view full document