Thursday, July 17, 2008

Is Off-Shoring A Case of Good Idea…Bad Execution?


With the current state of the dollar on the international monetary stage, many companies are re-evaluating the efficiency of sourcing abroad.  It appears more often than not, the estimated cost savings have been lost somewhere in the process.  A recent survey by Supply Chain Digest suggests the lost savings fall into five categories common to most companies:
1.       Sourcing Decisions:  Vendors are often selected on a lowest cost basis, but the analysis is incomplete, lacking full supply chain costs.
2.       Increased Inventory:  Additional inventory requirements to compensate for longer supply chains are usually overly optimistic.
3.       Increased Overhead:  Staffing requirements for both domestic and offshore management are underestimated.
4.       Transportation Costs:  Landed cost is difficult to track, and expedited services add a premium.
5.       Lack of Responsiveness:  Companies miss revenue opportunities due to longer supply chains and order delivery cycles.

The study suggests that companies overestimate potential savings 20 to 30% of the time. The savings may be real, but are usually lost when domestic purchasing agents become international sourcing managers.  Also, poor execution often leads to underutilizing container space or paying for smaller quantities that are not cost effective.

For help in your international and domestic shipping activity visit us at www.totalogistix.com or call us at 800.989.0054. x120.  There is something you can do about rising transportation costs.

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