1. The High Cost of Low Cost Country Sourcing
Research Conclusions
Jeffrey Collins
Chief Procurement Officer
jdcollins922@comcast.net
Home Office: 248.646.7233
Mobile: 248.990.5195

2. Low Cost Country Sourcing Evolution
- Lowest Piece Price to Lowest Risk Assessed Cost
Cost Savings Sustainability
Unknown Predictable
Price/Cost/RiskAssessment
None
Comprehensive
Lowest
Piece Price
“Three Bids and
a Cloud of Dust”
Lowest
Sustainable
Cost
Lowest Delivered Cost
Plus:
Quote / Cost Analysis
 Raw Material
 Purchased Parts
 Direct Labor
 Depreciation
 Overhead
 Profit
Lowest
Delivered
Cost
Lowest Piece Price
Plus:
 Freight
 Duty
 Packaging
 Inventory Costs
o Obsolescence
o Inventory
Carrying Costs
 Incremental Buying
Costs
o Regional
Offices
o New Supplier
Development
o Incremental
HQ travel costs
Lowest
Risk
Assessed
Cost
Lowest Sustainable Cost
Plus: Risk Assessments for:
 Customer Perceived Risks
o Quality Concerns
o Personal Safety Concerns
o Corporate Social Responsibility
Concerns
 Part Risks
o “Travelability”
o Legal / Intellectual Property Risks
o New product development cycle
time
 Country / Regional Risks
o Political
o Labor
o Currency
o Infrastructure
 Supply Chain Risks
o Raw Material availability
o Supplier Support of Customer’s
Engineering, Manufacturing, etc.
o Supplier Interface /
Communications concerns ex.
Finance, Material Control, Purchasing
 Loss of traditional supply base
knowledge and support
Domestic Auto Industry Today
Risk Levels
(Orders of Magnitude)
• Risk level 1 – buyers /
suppliers located
within 250 miles
• Risk level 2 – buyers /
suppliers located > 250
miles, but within the same
region
• Risk level 4 – buyers /
suppliers in adjacent
regions
• Risk level 6 – buyers /
suppliers in regions that
are not adjacent; requiring
over sea shipments

3. Lowest Delivered (and Sustainable) Cost - Conclusions
• Not all parts / assemblies / systems are candidates for “Low
Cost Country” sourcing
• Piece price alone is a poor indicator of “Low Cost”
– Purchasing organization performance metrics must be based on
Total Delivered and “Risk Assessed” Cost and integrated with
those of other departments / functions
• Quote and Cost analysis provides the basis for forecasting
future quality and delivery issues / concerns
• Cross-functional assessment of “Risk of Distance” issues is
essential to thoroughly evaluate all potential risks to on-time
and quality delivery of goods over the life of the sourcing
relationship
• Risk, as an element of piece price, increases by orders of
magnitude as distance between supplier manufacturing
plant and using customer plant increases
• LDC sourcing is often “in region”