Uncovering the True Costs of Global Sourcing

Many companies have either made — or are in the process of making — the transition from a regional, build-andsell business model to a sell-anywhere, build-anywhere and source-anywhere business model.

This globalization has led to dramatically increased supply chain complexity. The transition includes both new global sources of supply and new global sources of demand.

In many cases, these demand and supply location decisions are interlinked as companies invest and create sources of supply in countries they also desire to become markets for their products.

In fact, establishing sources of supply in low-cost countries has become a condition for survival in many industries.

The piece price of many parts and components from low-cost countries such as China and India is 30-90 percent lower than from established countries such as the United States and Germany.

Piece price is just one part of the overall cost that a company must pay, however. The metric that matters is total landed cost (TLC), which is the negotiated piece price plus all of the costs that are necessary for delivering that part on time and ready for use within a manufacturing or assembly plant.