When businesses plan for rapid growth to take advantage of favorable market conditions, the easiest path is often to consider global sourcing. Indeed many companies have done it with great success. We come across many items of our daily use that invariably have tabs announcing their place of manufacture in some distant land. You would often find a third world country offering competitive sourcing advantage. There will always be multiple factors that need consideration before a sourcing plan is implemented. However, here’s a quick look at some of the most critical.
Final Cost at the Destination
It is easy to be overjoyed to find that a product can be manufactured at a really low price in a low cost country. However, you need to remember that the unit cost in the country of procurement is not the same as the total landed cost. That needs to incorporate the cost of logistics, customs duty and taxation, banking fees, cost of capital and insurance, as well as any brokerage services that are required. You may have to deal with examination charges by customs as well as fumigation fees. Supply chain hitches may require additional charges for expediting freight or added cost of carrying inventory.
When planning out a sourcing products for Amazon strategy, product quality assumes critical importance. This is because the management is now removed from the actual place of manufacture by thousands of miles, time zones, and cultures that might make communication of quality expectations very difficult. Poor quality will have an immediate effect on the reputation of the company due to dissatisfied customers. You will also need to devote considerable resources to handle returns, a process few companies are well-equipped to take care of. When looking out for suppliers in LCCs, it pays to tie up with those who are reputed for delivering quality and nurturing relationships.
Practicality of Logistics
Even the greatest of global sourcing strategies will come to naught if the goods procured in an LCC cannot be easily, quickly, and cheaply transported to the destination. You need to examine whether there are good communication links to the nearest airport or seaport, and that the goods can be thereafter transported to the various destinations. You also need to find out an alternate logistical arrangement in case the primary seaport or airport is not available due to issues such as natural calamities or political disturbances.
It is easy to let your excitement regarding cost-advantage overcome the need to examine government regulations that can severely affect the attractiveness of a procurement country. Find out if there are embargoes or quota restrictions that could completely derail your global sourcing plans. Do examine all the documentation requirements necessary for U.S. Customs, and whether any incentives are allowable on imports from specific countries.
Apart from financial consideration, increasingly global sourcing decisions are being based on issues like responsiveness to market demands and conditions. If your supplier is unable to quickly ramp up deliveries to meet seasonal peaks, it could very well translate to a loss of market share and vital revenues. Often products require slight tweaking due to changes in styles and fads. It is important that the identified LCC supplier is able to move in tandem and adjust supplies.