Low-cost-country sourcing becoming increasingly important

• Sourcing in low-cost-countries is important to companies
• Success of sourcing projects depends on commitment from top management
• Roland Berger has tested five factors for the success of initiatives in LCC

Low-cost-country sourcing is crucial for the survival of many international companies. Employees can have a substantial impact on the success of these initiatives. When these projects fail, it is usually due to in-house resistance. Whether such a venture makes financial sense and will stand up to international quality standards is continually questioned. The experience of Roland Berger Strategy Consultants shows that the success of these projects is dependent on the commitment from top management. The strategy consultancy has tested five factors that are crucial to the success of LCC sourcing for most companies.

1. Choose the right product groups

The success of the initiative depends on the choice of product groups being sourced. By making the right choice, management shows its people that it knows the true strength of the company's products and that it is working to build on those advantages.

2. Analyze data to adequately plan and calculate total costs

It is critical to consider the total landed cost of LCC sourcing in order to make a proper comparison. In this way, management can demonstrate that it has thought through the initiative, has planned it carefully and has considered all the possible costs and consequences. For example, logistics costs, quality and inventory need to be considered in the total cost analysis.

3. Invest adequate resources, including top management

Above all, a company needs experienced people for an LCC sourcing initiative to succeed. Freeing up staff for these tasks requires money and energy. However, top management should also be involved with this issue. This way, the initiatives automatically gain higher priority, receive more support and, consequently, have a stronger roll-out. Top management can also smooth over any interdepartmental tensions that may arise.

4. Set up a cross-functional team

In addition to employees from Purchasing, it is also important to bring in people from Product Development, Quality Assurance, Logistics, and Production for the LCC initiative. Furthermore, one of the team members should have professional experience in the country concerned. This helps create trust, and any reservations team members may have can be dealt with more easily.

5. Use a transparent process

The initiative is most likely to be successful if management clearly shows how individuals and functions are to work together. In one case, a company went so far as to organize roadshows with presentations and brochures. It introduced the individuals and the team behind the initiative, clearly set out the objectives, tasks and the project plan, and shared the initial success stories. The effort paid off by significantly boosting staff motivation. Open communication counters anxiety, allowing concerns to be dealt with rationally.