A Supplier Cost Study: Local, Lean and Mean Vs. China

Even though this article originates from down under, the lessons learned are just as important on the Northern side of the equator as well. The author suggests that lean can be the ticket for local suppliers to compete on a global basis -- from a price and quality standpoint. In one example, the author, a sourcing consultant, notes that a Chinese supplier offered a bid that was "40 per cent ex-works unit cost saving at the start of the contract" in a global and local sourcing negotiation. But "over the five year period the total cost of sourcing the parts is only 1.4 per cent lower than the 'typical' local supplier and the Chinese supplier actually works out more expensive than a 'lean' local supplier." This suggests to me that perhaps we should not only dust off our NPV calculations for multi-year sourcing contracts -- not to mention looking to China and other LCCS regions more on a spot or short-term contract basis -- but developing lean suppliers might be just as great a ticket to savings as LCCS initiatives.

- Jason Busch

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