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Companies will look to technology to play a role in “computing” the various trade-offs among cost, lead-time and flexibility, with Green a simply unknown factor at this point. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

Too many companies wind up sourcing products from low-cost countries based on direct per unit costs and not total supply chain costs, says a leading researcher from IDC’s Manufacturing Insights group. While that critique has been around for a long while, IDC’s Simon Ellis wraps that observation up in an intriguing conceptual framework – “Profitable Proximity Sourcing” – that is definitely worth keeping in mind when making global sourcing decisions.

In a recent research note, Ellis comments that "While low-cost manufacturing is seductive initially, a "total supply chain cost" perspective is far more sensible - particularly as distribution costs grow as a percentage of total cost. Looking at total cost is hardly a new concept, yet all too often businesses do not take this view and end up sourcing sub-optimally."

In an even more bold observation, Ellis – formerly a “supply chain futurist” with Unilever North America before joining Manufacturing Insights – says that he believes that “the current myopic pursuit of “low-cost country sourcing” as a primary cost mitigation strategy is coming to an end,” in part as companies better understand total supply chain costs and as they focus on achieving a better balance of cost and service trade-offs.

Profitable Proximity Sourcing

In place of “low-cost country sourcing,” Ellis offers instead the concept of “profitable proximity sourcing” (PPS).

What does that mean? Ellis says it is “an intriguing concept that looks to balance cost and service, with going Green or sustainability also increasingly playing a role in the decision-making process.”  He adds that PPS is not meant to dissuade companies from low-cost country sourcing, but rather to “encourage it as part of a diversified sourcing portfolio.”

Ellis says he sees examples of this in action currently in the apparel industry, where many companies use Asian countries to make more mature, stable products but choose closer sourcing locations, such as Central America, for newer, fashion SKUs, accepting higher unit costs to gain speed and flexibility. This allows “the supply network to act more quickly to the more unpredictable nature of the demand.”

(Global Supply Chain and Logistics Article - Continued Below)