A Beginner’s Guide to Low Cost Country Sourcing
Manufacturing is an expensive business to be in. Margins can be small and competition large. These companies are always looking for ways they can reduce their costs, increase their margins, and stay competitive around the globe.
One strategy that many manufacturers take is to save on raw materials by shopping for them around the world and buying them in countries where prices are sometimes significantly lower than can be found at home. This practice is called low cost country sourcing.
While it is relatively common and can be wildly lucrative, it is complex and can be difficult to properly maintain. Here are a few tips on how to do it right and maximize potential profits along the way.
Consider All of the Costs
When shopping for these materials abroad, the price tag is just the beginning of the true cost of purchase. You have to consider all of the hidden costs of this type of import if you want to know you’ve made the best deal.
You must consider the tariffs involved and the tax structures in both locales to know what you’ll truly pay per unit. Also, consider the cost of transport. Depending on your situation it may be cheaper to find a supplier that provides transport, to provide it yourself, or to find a third party to handle that for you.
Consider Quality Standards
If you are dealing with a supplier in a poorer country, there are likely much fewer regulations on manufacturing there. You should consider what the cost of reduced quality consistency might be when dealing with a given supplier. Start with small orders on short contracts to assess quality before making long-term deals.
You’ll need to plan for potential scheduling delays due to quality issues, consistency issues, or various delays related to quality, as well. If your timelines are tight, you’ll need a supplier that won’t habitually submarine your efforts.
When searching for your supplier, there are two political considerations that you should include in your assessments. First, look at the political stability of the region with which you’re doing business. Your supply chain could be seriously impacted if unstable regions are involved.
Second, consider the political relationship with your own country. Try to avoid doing business in enemy states. When politics get involved, you could be looking at sanctions, added tariffs, or outright import bans given the wrong set of circumstances. Avoiding these might just keep you in business.
The world is flush with the potential for savings and increased profits. Be careful when finding the right global partners and low cost country sourcing might take your manufacturing business to the next level.