Tuesday, April 04, 2006

Setting Shop in India

Every company which has had an ambition to grow out of its strong markets has , at some point or the other contemplated manufacturing its components in the lower cost markets.

More often than not it has been a stop gap arrangemnet or a trial run which probably tends to lose its sheen.

How have the companies which have sourced and succeeded gone about it. We have studied many cases and our conclusions are predictably surprising.

A) EXPERIENCE : Most companies which began by component sourcing and found a good source have gone ahead and set up shop in the region from where they found the source . The quite obvious reason should be that they had suceeded and it is easy to replicate success especially if it is your own and not your competitors.

B) BREAK EVEN : The typical break even periods for an investement if the company can take about 70% of its new production for captive use in the world markets ( and not the market of the source region) , is 1-2 years. This is a calculation considering only the investment made and the profit generated by the new plant. When you consider that the product taken back to the world market is almost at a 30 % ( very conservative) cost advantage , the break even is further reduced.

C) MACHINING: The favorite method of all the companies is to start with a component involving machining. The prime reason being that lower labor costs ( which is what primarily makes the markets low cost) give more commercial advantage on machined components.

D) END PROCESS CONTRACTING : Some of the companies have a very intresting strategy. They set up a basic unit which only does the last leg of the product line ( like assembling, end welding, final machining etc) . These are typically companies which are attempting to reduce the load on their main factories and while doing so also gain the advantage of reducing costs and attaining a global footprint.

We have been presenting these ideas,along with project costs and financial analysis , to a few companies in the US/UK and Europe and the responses have been quite encouraging. Once the uncertainity or fears of the conditions of a new location are removed, clarity on the substantial and hetherto unkown cost advantage becomes visible.

The remorseless pressure of the markets cost dynamics is too compelling a factor for companies to ignore.

Sunday, December 25, 2005

Sourcing Flowchart

The anatomy of the Sourcing industry according to us. We believe that when done with clarity , more often than not SOURCING of Products results in a win-win situation for all involved.

Friday, December 23, 2005

Concept of Sourcing

What is that,often, sours your experience of Sourcing products. More often than not , it is concept of sourcing and the way you approach it that goes wrong.

Though all of us have been here long enough, there is still a need to differentiate between Buying and Sourcing.

When you buy, you get what the supplier thinks you need. When you source you should get what the supplier knows you need.

1) Check whether the source know his stuff. It is not what he manufactures now that matters, how he does it that matters.

2) Always start outsourcing with few components. Choose components which are losing market because of higher input costs.

3) Make sure that Components you select are worth sourcing. They should justify the efforts that you and your source take, either by value or volume.

4) Let him know everything that you desire and you will what you want

5) Make sure that the Source understands the Quality Requirements of the product.

6) Get samples made. If the sample involves fixed charges pay him for that as it indicates that you are serious about it.

7) Let the Source take his time the first time. He will do a good job. Keep the lines of discussion open, they help in furthering clarity.

8) Understand that per diem Freight and Insurance costs increase when the consignments are smaller , they wipe out a lot out of what you save. It is often the volumes in small and light engineering products that help.

9) Appreciate the fact that the if the Source is from another country and he will often face situations you never face. But if you have taken your time finding and evaluating your source, you will be more comfortable. With proper evaluation you will find a source who tries to take as much effort to understand you , as you do to understand him.

So next time you feel that a component needs to be sourced you know what not to do.

Thursday, December 22, 2005

Should Sourcing cost jobs

The raging debate continues and here is our take.

Notwithstanding the restrictive nature of the world economy today, it is increasingly evident that the only two ways companies can grow is , by expanding their markets and remaining price competitive.

Any company which wants to grow out of its home market invariably has to enter markets which are comparatively unknown to its management workforce. Companies in US and Europe find that apart from this , the price levels of markets outside their countries and the strength of their own currencies make their prices look unfair and at times ridiculous.

The best strategy that can be adopted in these cases is what the smart companies are doing. The products that are sold into a underpriced market are manufactured out of the same markets. This means that while they remain competitive they also do not have to cut their own company and country's workforce. The geographical and labour cost advantages that is derived from these markets means that companies have the cushion to keep their own markets intact while expanding into newer markets.

One thing that should remain very clear is that even one job lost in your company because you tried to source out , will start the rot. Those who ignore these signals will have to pay for it,because all said and done even the cheapest of markets never remains so and when it does become pricey , you need to have your own strengths to fall back to.

Engineering product sourcing

It is after a long and torturous journey through the pitfalls of Conventional marketing,Purchasing and Vendor relations that we are doing this.

It is our intention to make sourcing of engineering products a smooth process.

The constant need to find and buy at better quality and preferably lower costs, often lands the best procurement managers in trouble. OEM's facing increasing competition are under constant pressure to innovate and evaluate their costs to even hold on to their markets. The need to enter markets which are entirely different to their home markets and survive the vagaracies of those markets often call for intelligent and innovative methods.

We believe that the time has come for all organizations to look out of their factories and seek better sources. The increasing pressure on budgets and lack of time means that the Companies find it difficult to sustain their efforts of sourcing.

It is then that we decided to innovate............................... We have put together a team of engineering experts who are working in various fields and the pool of knowledge drives our ability to source even complex Engineering products. We ensure that the process is checked and vetted at every point and that the vendors in our network keep responding to the changes

The art of sourcing a product for a client lies in exactly understanding what he wants and not what he or you think he needs.