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- Jan. 5, 2011 -

 
     
 

Supply Chain Graphic of the Week: What LCC Really Does Provide the Lowest Landed Cost?

China's Cost Advantage Continues to Shrink, as Mexico for Now Emerges as the Clear Leader

 
     
 

By SCDigest Editorial Staff

 
 

 

What Low Cost Country (LCC) really does offer the lowest total landed cost?

It isn't China, that's for sure, according tp the most recent, just release Manufacturing-Outsourcing Cost Index from the consultants at AlixPartners. As shown in the chart below, Mexico has emerged as the clear winner, when comparing total landed costs versus the cost to produce in the US, coming in at just 75% of the US total, average a "basket" of different goods and components.

China, by comparison, only offers a landed cost that is 88% of the US cost - a margin that in many cases make economic sense.

We will note that the recent rise in relative landed cost in part comes from from the falling value of the dollar versus the currencies of each of these countries.

 

Outsourcing Costs in Various LCCs Versus US Costs

 

 

The analysis also said that based on assumptions about where three main cost drivers are headed (Chinese labor costs, value of the Yuan currency, and international shipping), China's costs versus the US are likely to be at parity by 2015 - supporting predictions done by others such as the Boston Consulting Group in 2011.

You will find more detail in our full story here: Yet Another Report Sees China's Manufacturing Advantage Shrinking

Have a comment? Send it at the Feedback button below.

 
 
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Feedback
2008-10-03

Oct. 3, 2008

There are valid reasons for both the DC and DSD distribution models, but neither should determine the store assortment, which depends on the consumer.

The Distribution Center model makes sense when you have many prepackaged products which are continuously replenished and require little in-store servicing. With the facility justified, you can also add seasonal and holiday 'in and out' products which can share the distribution network.

The key is to manage the time supply of inventory in the warehouse and distribute it efficiently.

The Direct Store Delivery model can be implemented purely as a distribution method or also allow the manufacturer to manage some of the in-store merchandizing.

I do not see any advantage of using DSD simply to deliver merchandise. Although it may help the 'mom and pops' that are on the same route as a large retailer, the DSD model must be more expensive. Once the big drops are removed, it will become more costly to reach the independent retailers but the larger retailer must benefit.

If DSD is used to support in-store merchandising, then you have a different story. The manufacturer's representative can give their products the individual attention that increases their sales. The bad thing is that they can also load up the store with inventory if no one is watching.

Bill Bittner
President
BWH Consulting



 


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