One of the hottest buzz phrases of the early 2000’s was “low cost country sourcing,” or LCCS.
Here in 2018, we still outsource to low cost countries. But, with the hot economy that I’ve been blogging about lately, it’s time for an evolved focus and perhaps a new buzz phrase.
As I’ve written about the currently hot economy, there “is a point where businesses cannot find enough resources to support the increased amount of products and services that confident, well-compensated consumers are demanding.” Those resources include supplier capacity. If it hasn’t happened already, suppliers will soon be unable to deliver in the same time frame that you – and your organization’s customers – have become accustomed to.
So, you’ll need more and new suppliers.
Where do you look for them?
Well, maybe not in the same low cost countries that you’ve looked in the past.
Well, in the early 2000’s, the focus was on low cost. Mainly because the economy was tough. Driving cost out of the supply chain wasn’t just good business – it was essential for survival! And the labor arbitrage delta between buying countries like the USA and certain low cost countries was huge. At the time, I remember reading that the labor in one of those countries was 12x cheaper than American labor.
However, more recent sources have pegged the current delta at less than 3x. And it’s not only the accelerated labor inflation in the low cost countries of the previous decade that have changed and made them less desirable sourcing targets. But the capacity of suppliers in those countries has filled up, especially on the services side. While you may have gotten top-level talent to service your account 15 years ago, you may end up with the bottom of the barrel-level talent serving you if you were to onboard a new supplier in those regions today.
Supply base talent is like a bell curve, with the horizontal axis representing talent levels from low to high when reading left to right. Well, in many of the household name low cost countries, the right side of that bell curve is already serving buying organizations who’ve sourced there before you. While capacity still exists, good capacity has been drying up for years.
So, today, there needs to be a new paradigm for offshoring. LCCS will not serve today’s hot economy as well as it served the cold economy of 2002.
Today’s focus needs to be on HCCS: High Capacity Country Sourcing.
To continue today’s production and service levels, buyers need to source in countries where the #1 priority is capacity. And implied with “capacity” is top-notch capability – the ability to meet high standards for quality, delivery and service.
You need suppliers that you can onboard quickly. You need suppliers with scalability. You need suppliers who are agile enough to accept more business if the economy continues its tear or scale back while remaining solvent if things cool off.
Sure, a cost advantage still is a reason to offshore. But keeping your organization competitive and performing well in the challenging environment that is the hot economy of 2018 will require extra attention to capacity in your supply markets.
The letters HCCS should be on the lips of every buyer facing supply constraints today.