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Articles
& Cases - Cases
Volume
Matters
ABC
Company is an European auto part manufacturer. Mr. Smith, purchasing director for ABC Company
planned to source some machined parts from China. He contacted Mr. Zhang,
a China sourcing consultant discussing feasibility.
Mr.
Smith planned to source 10 parts. The annual volume for each part is about
1000 pieces. It was very expensive to produce those parts in Europe.
Weight for each part was about 20 grams. Based on his experience, Mr.
Zhang thought that these parts were not suitable for sourcing from China
because the volume was too low. He contacted three Chinese factories and
the feedback from the factories confirmed his view. Main feedback from
these factories are as follows:
1.
Price for these small machined parts was about USD0.30 per piece. So for
10 parts at 1000 pcs per year the total order value was about USD3,000.00.
This amount is not attractive to Chinese factories.
2.
For each part, Chinese factories need to spend a lot of engineering
efforts in process design and new tooling. The low volume can not justify
that.
3.
One of the factories said that for these small machined parts their
minimum order quantity was 10,000 pcs per part.
Analysis:
Low
volume products are usually not suitable for China sourcing projects
because of the following reasons:
1.
No Chinese factories will be interested in those products. Business model
of Chinese factories is usually mass production and lower margin.
2.
Compared with the product value, the time and money spent on realizing the
sourcing process will be too high to make it feasible.
3.
Cost savings are limited.
In
practice, it is impossible to source all high volume products to China
while to have all low volume products made locally. The tactic is usually
mix high volume products with low volume products that make the whole
package attractive to Chinese factories and total cost savings attractive.
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