Low cost country sourcing - Part 2

TIP 1: Calculate all the costs by getting everyone involved
Time and time again, companies do not take into account all the expenses incurred in LCCS and fail to consider the needs of the entire business and its various units.
"You don't want procurement to just go out and save money by getting the cheapest supplies," says Chris Sawchuk, practice leader for procurement and supply chain at The Hackett Group in Atlanta. "Procurement organizations pursuing LCCS need to understand what is happening from an overall business standpoint."
Sawchuk recommends creating a cross-functional team that includes procurement, engineering, supply chain and finance people who can coordinate the most efficient and productive LCCS plan. By doing so, a company can best anticipate actual savings and set realistic goals and expectations.
Preliminary results from a Hackett Group study on successful global sourcing show that companies save approximately 19% on parts price savings alone. Add expenses, such as shipping costs, duties, tariffs, IPO operations, inventory and other charges, and the savings dwindles to less than 17%—an important 2% difference when plotting financial targets and presenting results to the CFO.
TIP 2: Protect against the theft of intellectual property
"You need to unbundle intellectual property," says David Morgenstern, managing director of low-cost country sourcing for Ariba in Sunnyvale, Calif. In other words, when moving to low-cost regions of supply, a procurement organization should have multiple sourcing strategies, whereby different overseas companies supply one of several parts. Collect the components—and don't forget to make sure ahead of time they are compatible—and assemble the final product in the U.S. for improved manufacturing and distribution control.