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Health checkThe Supply Chain and the Far East: The hidden costs
Introduction
Supply Chain professionals are currently under pressure as companies are planning to grow but are struggling due to a lack of a decisive competitive advantage. Inevitably the focus shifts to the cost side of the profit and loss account and Supply Chain professionals are under the spot light to deliver on cost reduction programmes in the supply chain.
For those that can remember it outsourcing to locations such as Spain was the low cost option. Then came the central European countries (e.g. Poland, Hungary etc). The latest Supply Chain strategy has focussed on the Far East.
Benefits of outsourcing to the Far East
Outsourcing to the Far East definitely has the attraction of lower purchase price per unit and can offer aggregation (economies of scale) of transportation costs.
However – is the gamble worth the stake?
There are some real significant risks that maybe over looked when making this decision that will have a substantial impact on the true cost of operating the supply chain and its ability to support the business.
These are:
- Responsiveness – competitors able to capitalise on fluctuations in demand (both increases and decreases)
- Speed to market – competitors able to launch and capitalise on new product launches faster
- Price cuts – pressure to discount products with high inventory levels
- Obsolescence – higher risk of slow moving stock at the end of the product life cycle
- Cost – high cost of storing larger volumes
- Dead stock – higher risk of having to write off unusable or un-saleable stock
- Currency exchange – downside gamble on exchange rates fluctuations in growing economies
- Cash flow – much higher capital employed in goods in transit
- Risks of disturbances – single events have huge disruption on months worth of product availability
As can be seen from the past these lower cost economies soon lose their low cost advantage and the supply chain needs to refocus elsewhere. China is emerging faster than any previous low cost economy.
How do we help our clients improve the odds?
Using Goldratt’s “Supply Chain Management” based on the “Theory of Constraints”, we partner with our clients to develop an improved way of working with suppliers which lowers the true cost of operating the supply chain.
This partnership enables our clients to respond faster to the unpredictability in demand from the market and capitalise on this unexpected need while the competition is unable to react. Our clients are also currently benefiting from reducing their inventory levels while maintaining excellent availability to their customers. Furthermore any disturbances which affect the supply chain have a negligible impact on sales.
Contact us to find out more about how we help our clients improve the odds.
