Low Cost Country Sourcing

Low cost country sourcing [LCCS] is a procurement strategy involving sourcing categories from countries with lower labour and production costs in order to minimise total cost. This links low cost country sourcing with global sourcing strategies. Low cost countries include China, India, Malaysia, Indonesia, Thailand, Vietnam and Brazil. The focus on ‘low cost’ highlights that the strategy is not necessarily low risk. Supply chains are often elongated with greater risk of interruption. If the source of lower cost is lower wages, so-called labour market arbitraging, this may also present issues if the buyer has a corporate social responsibility policy requiring that wages should meet local standards. See also Sourcing.

In short

LCCS moves sourcing to lower-cost countries to cut total cost, accepting a longer and riskier supply chain in return.

When LCCS makes sense

• Labour is a large share of the product's cost.
• The specification is stable and can be written down precisely.
• Volumes are steady enough to carry longer lead times and buffer stock.
• Quality can be inspected or certified at the source.

Judge total landed cost, not unit price

A lower unit price can disappear once you add freight and insurance, import duty and customs, the stock you carry through longer lead times, inspection and rework, supplier visits and management time, currency movements, and the cost of a supply interruption.

Risks to plan for

• Longer lead times, and disruption at sea or in ports.
• Quality, and protection of your designs and intellectual property.
• Currency and political risk.
• Modern slavery. Under the Modern Slavery Act 2018 (Cth), Australian entities with annual consolidated revenue of at least A$100 million must report on modern slavery risks in their supply chains.

Best-cost country sourcing

Many teams now talk about best-cost country sourcing: choosing the location with the lowest total cost at an acceptable level of risk, which is sometimes closer to home.

How to start

1. Use a spend analysis to find categories where labour cost and a stable specification make LCCS worth testing.
2. Model total landed cost for two or three candidate countries.
3. Pilot one category with a second source as a fallback.
4. Review after a full supply cycle before you scale up.

Comprara runs sourcing projects like this through its procurement delivery support service.