Given the current interest in re-shoring and Michael Lamoureux's solid summary and analysis of the topic, I thought it might make sense to step back in history for a moment and look back at sourcing questions from 2007, a time before the initial pullbacks in China sourcing began. The MetalMiner team gave a presentation during the fall of that year, nearly five years ago to this date, titled: Is China Your Best Option For Low Cost Sourcing?. Not surprisingly, much of the advice in the content from this presentation is still relevant today in the re-shoring cost equation.
Consider the final recommendations:
- If you haven't built a total landed cost model or don't know what % savings you get on your parts/components; develop this model ASAP...you might not be getting any savings!
- Consider dual vs. sole sourcing, particularly for categories with a lower % savings – develop your contingency plans
- Near-shoring (e.g. Mexico) is another viable option to mitigate risk and ensure steady supply even for perhaps a % of the total category spend
- Supplier identification and qualification remain key activities of any sourcing organization – look at new countries!
- But don't rush to leave China! If your parts are high value add, you have less to worry about as the Chinese government wants to support these types of exports
Perhaps we were a little bit optimistic on that last bullet. Even for products with material value-add (assembly, coating, finishing, kitting, etc.) far beyond semi-finished products, the Chinese cost equation, if you factor in quality and required inventory carrying costs, likely ends up being higher for organizations in recent years than experts might have predicted five years ago. But in general, the recommendations when considering the re-shoring option and cost analysis still hold weight today.