Yesterday I spoke at the Del Mar Electronics show thread about reshoring, regionalization and the opportunities for local manufacturers.   I chose not to specifically speak about ‘challenges’ and instead kept the focus on ‘opportunities’ because that’s what they really are, right?   The issue boils down to comparing the differences in landed cost using different sourcing or manufacturing strategies to the differences in the indirect costs that will be incurred as a result of a strategy change.   There are a variety of different risk factors which stand apart from the variable landed cost: Obsolesence, Quality, Intellectual Property, Service Level Inventory.  The Reshoring Initiative’s Total Cost of Ownership model is a good tool for factoring these into your decision.

Obsolesence & Service Level Inventory – If the product has a very short life-cycle, there should be plenty of  history of how much product has been scrapped in the past or sold at a discount.   It’s up to you to decide how the cost savings compares to the average or worst case examples in the scenario factoring in differences in the length of the supply chain, if any.   Alternatively, what could you save if you didn’t have to commit raw material into the production process any further out that say a couple of weeks, not two, three or four months or more?

Quality – This is a tough one, but it is also the one I have the most examples on.    One of the first customer prospects I visited as a ‘pure’ salesperson (we’re all salespeople really.  ‘Pure’ means I carried the title as well) was an interesting case.  An engineer who had dealt with us previously was trying to help us replace a supplier that he felt was causing problems so he was looking for a new source for high mix, low volume cable assembly.  He showed me piles of defective product that they couldn’t return.   We quoted a couple of parts and because the current supplier was in Mexico and we where using US labor costs, I couldn’t get closer than a few percent.  On one high labor part we were 15% off.   I could guarantee 100% on-time delivery and assembly quality.  The difference in price was a fraction of what they were incurring in defects.  The buyer said “Why would I pay you more than my current source”?   If these were engineering issues, they wouldn’t be looking for another source, they would be interviewing Engineers.  The buyer flat out didn’t care about anything else than not looking soft by sourcing at a higher price even though it would likely save the company money over the long haul.

I always thought that bigger companies had the hardest time sourcing to total cost, but this situation jolted me out of that notion.   It made me recall a project earlier in my career.  I was responsible for a large printed circuit buy for a large automotive electronics company.  Reverse Auctions were all the rage for quick hit cost reductions and my group had been selected to get ‘help’ from a large consulting firm on such a project.  The firm wanted to perform an unqualified auction.  Sign potential suppliers up.  Give them instructions via conference call.  Send out the package and see what fell out of the tree when shaken.   I strongly and successfully resisted the ‘unqualified’ strategy at risk of limiting my career.  The project was an outstanding success, not just in what it earned us, but from what I was told happened with the same process ran by one of our competitors who had chosen the  ‘unqualified’  option.  Once the bidding was complete, they had to work their way well down the list to find someone who actually produced the product and was not a middleman/broker and further still to find a company who could actually do the work at the quality levels they needed.

You send a strong message with first impressions.  If you ask for cost or price before you even think about quality, you are sending a message on what is important.  If price is first, then you will move quickly when someone gives you a better one.  I often hear the excuse that ‘we’re in such a competitive business….’    I can’t think of many businesses that are not in a very competitive market.  No businesses are easy these days.   You can get any price you want, but what you get may not be what you need.  I want to suggest a different way.  Look at the ‘wastes’ in how you are doing business today and look for partners that can reduces those wastes and find the right price that makes everyone successful.

 

 

 

 

 

 

 

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