With the current state of economy showing little sign of improving, consumers strive to find the best value for the dollar in their day to day purchases. Business customers looking for similar value propositions can sometimes get wrapped up in the allure of off-shore sourcing for raw materials and finished product. Truth be told, there are benefits to sourcing product in low cost countries, but one should not be misled by the cost of doing business there. 3rd party low cost country experts will advertise big savings in cost of product they can provide, and at first blush sourcing decisions appear to be a no-brainer.
The bottom line is there are many factors that add to the cost of part or assembly and that is why focus should be on the total “landed cost” versus purchase price. Total Landed Cost takes into account factors such as Transportation, Value Add Taxes and Duties, Inventory Cost, Lead Times, NRE, among others that can cut deep into an advertized price reduction. Engineering Change Orders also play a major role in decisions to go off shore. Each change to a part no matter how minor requires material to be returned to the source for modification, scrapped at the end point, or re-worked by the receiving party. With many off-shore parts arriving in the USA via ocean, the amount of inventory that needs to be modified can be three months usage and more, which will inevitably add cost.
Columbia Tech has designed its supply chain around strategic partnerships with local suppliers of custom parts keeping the total landed cost of a part practically one for one with negotiated purchase price. As is typical in a contract manufacturing environment, material costs equate to a major portion of the final product cost, therefore it is imperative not to get blindsided by unforeseen costs from looking off shore. Utilizing these partnerships is good for the local economy as well, and goes a long way in keeping the Made in America label ever present in the products we manufacture.
Not all material can or should be purchased locally. With many electronic components manufactured in the Far East, a portion of our assemblies will include foreign content. In these cases sourcing off shore is practical and we work with our distribution partners to ensure total landed cost is used to derive what the material burden on manufacturing the end product will be. Designing with industry standard components allows for volume pricing discounts. Partnering with global distributor’s gives us leverage when dealing with allocations, extended lead times, and hard to get components. Having a group of specialists that think total landed cost ensures our products have the lowest material cost possible.
Cost is next to quality when it comes to delivering high levels of satisfaction to our customers, and we work with our strategic partners to provide the lowest total landed cost the market will bear.
About the blogger:
Tracy Galvin is the VP of Supply Chain Development at Columbia Tech