Topic: outsourcing

The Pros and Cons of Global Sourcing

September 4, 2019

Would your business benefit from global contract manufacturing?  Outsourcing production to low labor cost countries such as China, India, or Taiwan could save your business plenty of money, but it can also pose many, many challenges.  We've outlined below the pros and cons of outsourcing so you can decide if it makes sense for your business.

Pros:

Cheaper Cost:

It's no secret that labor costs in countries like China, Taiwan, and India are significantly cheaper than labor costs in the U.S.  Utilizing manufacturing labor in these countries allows for the gross cost of the product(s) you need to be made less expensively and with the same level of quality you would expect from world class manufacturing.  Being able to properly utilize overseas manufacturing plants can greatly cut down your production and labor costs allowing your business to allocate that money elsewhere, including your bottom line.

Increased Capacity:

Because of the major investments in the manufacturing sectors in countries like China, there is much more manufacturing capacity when compared to the U.S.  Most of these countries have dedicated huge portions of their economy and investments towards manufacturing and they have the technical labor force necessary to run their plants as good, or better, than U.S. manufacturers.  The capabilities of factories in these countries are much bigger than what many of the factories in the U.S can handle which gives them a clear competitive advantage in quality of components and the rate at which they can produce the components.

Technology:

As noted in capacity, huge investments are being made ensuring manufacturing plants are equipped with the most up-to-date technology in the world.  We’ve all heard stories of dirt floors and leaking roofs scattered throughout China, Taiwan and India.  While you can certainly still find them if you look hard enough, some of the most state-of-the-art manufacturing happens in these countries. Because of this trend on staying at or ahead of the technology curve, great efficiency is gained in producing components, assemblies or finished goods.

Cons:

Language barrier:

Countries like India and China have been hot spot sourcing locations for businesses in and out of the U.S for years now.  It is noted that English is still the driving economic language.  However, getting outside of these countries and effective communication (language) can be challenging.  Having quality customer support as well as an effective channel for communications is crucial to maintaining relationships with business partners.  If there is a language barrier between your business and your supplier, there are many issues that can arise.  Even aspects like differences in conversion from standard to metric or “equivalent” raw materials can add stress to an already challenging environment.  It's important to make sure there are contacts in your company and with your supplier that are well-versed in both native languages and have an established relationship with the supplier's point of contact.

Infrastructure:

In certain developing countries, infrastructure can be challenging.  India is a prime example of this.  Due to heavy traffic going through roadways/interstates that are in desperate need of repair and maintenance, logistics in country is difficult.  In addition, port delays and a lack of a sense of urgency compound the infrastructure problems.  Countries like China and Taiwan have solved this problem years ago, and you simply don’t see the same infrastructure challenges as you do in India and other developing countries. 

Long Lead Times:

Extended lead-times for components/production is something that must be accounted for and planned for when developing a global sourcing strategy.  Being able to fully understand production lead-time and adding additional time factors is critical:

  • Ocean transit time
  • Port loading and unloading
  • Customs hold times if a shipment has go to through an exam
  • Trucking time from port to facility or bonded warehouse
  • Local transit to your facility

After you add all of these up, you can find yourself staring at a big number.  With forecasts and demand fluctuations being challenging to predict, the necessity of holding safety stock is pretty important.  A secondary domestic supplier can help with this in urgent times, and should always be looked at from a safety standpoint.

High Minimum Order Quantities:

What is a minimum order quantity (MOQ)? A minimum order quantity is the lowest number of units of an item that a supplier or factory is willing to produce in an order.  Many factories will require a high MOQ, especially as it relates to cast, forged or stamped parts.  In order to effectively absorb the setup times, and to be profitable, MOQ’s are usually established.  If you have a low volume casting that you have some demand for, it may make more sense to source domestically.  Higher volume components usually have no issues meeting minimum order quantity requirements.

 

Component Sourcing International provides supply chain solutions for unique manufacturing challenges by lowering your costs and improving your productivity.  We give you both the peace of mind and confidence to know that your finished products will be of the utmost quality and at the best pricing the world has to offer.  To learn more about how CSI can act as your Global Sourcing Integrator, contact us today.

Read More

4 Ways a Global Contract Manufacturer Creates Additional Working Capital for Its Customers

August 5, 2019

Cash is king!  Now more than ever sourcing leaders are being tasked with doing everything possible to increase their company's working capital.  One way to ensure this happens is through the use of a global sourcing integrators.  Below are four ways that the right integrator can ensure an increase in working capital to its customers.

 

1. Landed Cost Pricing

As a buyer of globally sourced products, you understand all of the costs that go into logistics, transportation and customs clearance, which are on top of the gross cost of the product you’re purchasing. Most global sourcing integrators take these ancillary costs and roll them into their price to you.  This frees up your working capital, as you don’t have to come out of pocket for these added costs at the time of receipt or before receipt of the components.

 

2. Float all Up-Front Development Costs Until Samples are Approved

Tooling, setup and engineering charges are a normal part of getting a new manufacturer approved and qualified.  Depending on the complexity of the project, these costs can be extremely expensive.  The right sourcing integrator normally defers these costs until after the samples are completely approved for production or only charges a certain percentage of the total cost.  Regardless, you win as you don’t have to come out of pocket for the entire cost until the projects are formally approved for production.

 

3. Finance & Hold Inventory Locally & Release to schedule (JIT)

Being able to finance and hold inventory is what sets apart a great global sourcing integrator from an average one.  Shifting inventory over to an integrator's warehouse ultimately reduces your holding costs, as you now only have to carry a fraction of the inventory that you once had to hold.  In addition, with blanket purchase orders, most great integrators will hold that inventory up to a year and release to you as you need inventory (Kanban release, batch release, weekly release, etc.).  Offering this type of JIT service continues to be crucial in ensuring that you get the parts you need, when you need them.

 

4. Finance Receivables with Credit Terms

A qualified global sourcing integrator should offer inventory financing solutions.  These solutions enable you to increase your working capital by:

  • Offer savings on LOC/bank interest
  • Allowing optimization of your warehouse space/assembly cell space
  • Offering early pay discounts
  • Decrease of operational expenses
  • Rationalization of the number of suppliers you have to manage
  • Reduction of freight/logistics costs

 

Component Sourcing International provides supply chain solutions for unique manufacturing challenges by lowering your costs and improving your productivity.  We give you both the peace of mind and confidence to know that your finished products will be of the utmost quality and at the best pricing the world has to offer.  To learn more about how CSI can act as your Global Sourcing Integrator, contact us today.

Read More

Tariff Avoidance: 8 Low-Cost Global Sourcing Alternatives to China

July 1, 2019

 
With the rising tariffs and pending trade war with China, many U.S. manufacturing companies are looking at other countries for strategic sourcing solutions.
 
Many other countries offer similar lower wages and the same or better quality materials as you would find in China. While many businesses have been outsourcing production to China for years, the increasing tariffs associated with the trade war may prove too costly for some.
 
Below we've outlined eight alternative low-cost countries to China.
 
Read More

4 Benefits of Component Sourcing Through an Integrator

May 28, 2019

So you have a business with a great product, but you're looking for cheaper methods of manufacturing. Commodity managers, materials managers, and sourcing engineers have big decisions to make in regard to finding the right suppliers for their production parts at the best total cost.

Should you look for your own manufacturers in Asia or a low-cost country (LCC) outside of Asia? Or should you use a sourcing integrator that already has an established global manufacturing base? Below are four reasons why it makes sense to outsource your components through an integrator:

Read More
«
1
» »