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6. Implement regular total-landed-cost sourcing analysis
One of the challenges confronting supply chain managers is that supply chain cost structures
have become very dynamic. Labor costs, fuel costs, and currency exchange rates for low-cost
countries all fluctuate significantly, causing profitable sourcing strategies to turn unprofitable
much more quickly than they have in the past.
Historically, sourcing strategies were largely based on unit price, and they were executed that
way for years. Leading companies today have integrated workflows across engineering,
procurement, and supply chain organizations to incorporate total-landed-cost analysis into
engineering and procurement decisions. These decisions are based on a holistic view of cost,
including:
Unit price
Transportation costs, including fuel surcharges
Expediting costs
Handling costs
Inventory carrying costs
Inventory obsolescence costs
Duties and taxes
Product rework and damage costs
Customer service penalties
Furthermore, sourcing decisions have a large impact on the cost to serve discussed earlier.
Accordingly, supply chain managers are ensuring that sourcing decisions are made within the
overall segmentation strategy for serving customers profitably.
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