For example, when a firm located in the United States gets its raw materials from a Central American company instead of a costlier US company, then the US firm would be said to be doing low-cost country sourcing.

There are 7 critical tips to ensuring low-cost country sourcing is truly low-cost.

1. Understand the tariff and tax structures involved.
   Low-cost countries may or may not prove to be a net gain depending on the level of export taxation in the source country and tariff levels in the importing country.
2. Do a real transportation cost analysis.
   While ship transport is a fairly economical method, the overall cost analysis of low-cost country sourcing and domestic sourcing is critical to the overall cost equation.
3. Consider the EOQ delta based on potentially longer lead time.
   Even if tariffs and transportation costs do not negate the advantage of low-cost country sourcing, the effect of longer lead times on Economic Ordering Quantity or the need to increase the level of Safety Stock in the consumption country may create a zero-sum gain environment.
4. Determine the importance of quality control to business outcomes.
   Frequently, companies find they must accept a lower-quality product or invest in significant inspection resources at the point of product receipt. This can overwhelm the savings provided by a low-cost point of origin.
5. Calculate potential cost if supplier fails to meet Level of Service timeline.
   For companies engaging in Just In Time (JIT) methods of supply chain management, low-cost country sourcing of critical components is generally not an option. Stopped production lines generally cost more than low-cost country sourcing can save.
6. Research risk of political instability in the region.
   Political unrest, both internal and external, can halt supply lines. From the pirates in Somalia to airport closures due to terrorist threats in the EU, political instability in countries with low-cost materials and labor can play havoc with your supply chain.
7. Project cost of having directly or indirectly monitor suppliers.
   Procurement managers need to honestly evaluate the layers of monitoring, mentorship, and auditing needed on their low-cost country sourcing versus domestic sourcing.

As a general rule, this form of sourcing is used for simple components or cheap consumer goods. If the stitching is poor on textiles, it is less critical than even a minor error on a printed circuit.

Education and skill level of the workers will dictate the type of products and services sourced from lower-wage or weak-currency countries.

The post Seven Tips on Managing Low-Cost Country Sourcing first appeared on Remoteamate.

There are a number of different definition of sourcing but mainly there are two major definitions: strategic sourcing and global sourcing.

Definition of Sourcing I – Strategic Sourcing

The first Sourcing definition i.e. strategic sourcing is a concept that was popularized by major consultancy companies in the late 1980’s 1990’s and is now considered a standard purchasing strategy used by many blue chip companies.

However, the most popular definition of sourcing is strategic sourcing. This is the process of taking advantage of purchasing opportunities by continually reviewing current needs against purchasing opportunities.

Strategic sourcing was first established by General Motors in the 1980’s and is now a common business purchasing tool. The rise of China and its manufacturing capabilities has opened up numerous strategic purchasing opportunities.

Strategic sourcing is often used for high valued services, ad hoc purchases and core large values purchases. There are several processes within the strategic sourcing process and these are:

• Evaluation of the company’s current purchasing cycles.
• Evaluation of what is currently available in the supply market.
• A review of the cost benefit analysis of using other suppliers.
• A review of potential vendors.
• An update of the current procurement strategy.
• Negotiations with potential vendors to ensure that they meet the new procurement strategy and cost benefit analysis.
• Implementation of the new vendor relationship.
• On a continuous process, review and update the strategic sourcing.

Definition of Sourcing II – What is Global Sourcing?

The second sourcing definition i.e. global sourcing is sourcing products and (sometimes services) irrespective of national boundaries. It is particularly popular within the EEC countries in Europe and Asia. Both of these areas are less concerned with geographic boundaries.

The rise of Chinese and Indian manufacturing capabilities has meant that sourcing from these countries has greatly increased in the past few years. Purchasing companies are seeking low labor and production costs which are not countered by high delivery costs. Many improving countries also offer attractive tax and tariffs to encourage purchasing from them.

Another definition of sourcing is that of sourcing personnel. This is use of proactive searching for potentially highly skilled members of staff that may provide your company with a competitive advantage. Sourcing of staff is also a complex procedure and is used when numerous part-time or short term staff are required.

The most common definition of sourcing is the process of identifying potential vendors, conducting negotiations with then, and then agreeing supply contracts with these vendors.

The post The Definition Of Sourcing – So Many Vital Processes first appeared on Remoteamate.