How Updated Are Your Supplier Score-Cards and Total Landed Cost Models?

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Sourcing Strategies

Have you noticed as the summer vacation period approaches the level of activity tends to gradually decline? Maybe this week is worse because we have a (well deserved!) July 4 Friday coming up and the prospect of a long weekend. It’s times like this when business is a little slack that good sourcing practitioners take the opportunity to re visit those to-do’s that have been gathering dust for the last few months. We thought a few reminders would not go amiss.

How accurate today is that Total Landed Cost model you put in place last year? Export duties (in the case of China and on some products from India  and Russia), freight rates, and labor rates have all gone up since last year. Some metal costs (zinc, lead and nickel) and interest rates may well have come down. Exchange rates coming down can mean a cost going up, the point is variables like currency and metal costs should be adjusted weekly. Have yours? Take the opportunity to review what that component is really costing delivered to your door in today’s market.

Which brings us onto a perennial to-do that often gets put on the back burner. If that component or assembly that you outsourced to a LCCS a year or two back hasn’t been revisited lately,  now might be a good chance. Exchange rates in particular have moved considerably in the last 2 years and many outsourced assemblies could now better qualify for manufacture closer to home, if not domestically then may be in Mexico. As always apply the total landed cost philosophy to the assessment, even non cost issues can be quantified. There are justifiable reasons for paying a higher price to have a critical part made domestically and recent currency or freight movements could be the decider. Likewise you may have a number of components you assemble yourself but have wanted to see what the enterprise savings would be to buy in a finished assembly, may be now is the time to scope out the requirement and go out for tender.

Lastly it sometimes seems like a lame number crunching exercise but supplier scorecards, if actively managed and built in as part of your supplier relationship management are an extremely effective method of keeping your suppliers focussed and providing a benchmark against which you can assess alternatives. You have been meaning to implement such an arrangement, so what are you waiting for!

–Stuart Burns

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