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UPS Insights

Building Supply Chain Resilience in Low-Cost Country Sourcing

By Paul Chee, Business Development Manager, UPS Singapore

The continuing pressure concerning cost and quality has always had an influence on a company's supply chain strategy direction and this has led to low-cost country sourcing.

Aside from globalisation, there is an ongoing trend of supply chains engaging suppliers in least-cost countries where, arguably, some of the best manufacturing plants are located. By exerting effort, companies especially those in the SME segment can discover suppliers that produce higher quality products in these countries compared to those nearer to home.

In a recent global survey ¹ released by UPS and the Economist Intelligence Unit, it has become a leading challenge to find these high-quality producers. Companies withdraw from some suppliers in low-cost countries because consistency of quality is a problem.

According to the report, a small but considerable percentage of companies is turning away from this strategy. For China, about 11 percent of all respondents, or 15 percent of those who currently sources there expect to decrease purchasing from the country, or even stop altogether. This is on top of 8 percent of all respondents indicating that they already had done so.

For India, 6 percent of respondents indicated that they have significantly reduced sourcing from the country.

Challenges in low-cost country sourcing are significant. They may vary from the length of travel time, ability to deliver what they promise, or even contract enforcement and intellectual property rights (IPR) protection.

Although low-cost country sourcing can be a complex environment for both MNCs and SMEs, the key to success is not.

Here's what you need to build up to create a resilient supply chain in low-cost countries:

1. Build in resilience.

Trust is built up over an extended period of time. Invest in finding the right companies and be vigilant about from whom they purchase.

2. Understand the issues.

Educating and working with suppliers are important. Introduce performance management systems and give details of what is required and ensure that it materialises.

3. Monitor and structure the supply chain.

Structure the supply chain intelligently. Do the groundwork if your company wants to attain the same savings of the competition.

4. Work with suppliers.

Have people out there and put in the effort of visiting the factory. Working closely with suppliers in low-cost countries gives you confidence in your company's ability to operate in that market.

To get the greatest advantage out of low-country sourcing, companies should monitor closely and use the resulting insight to develop structures that consistently tackle the risks they face.

1. Twenty-six percent of the senior executives interviewed are based in Asia Pacific. The survey was supplemented with interviews of academic experts and leading supply chain practitioners.

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