Product Sourcing Service
Landed Cost Vs. Total Delivered Profit?
Primarius’ sourcing solutions focus on increasing total delivered profit.
The total cost of buying product from overseas is, in many cases, very different from the imagined cost. Initial sourcing decisions, based on a straight landed cost approach, have seen sourcing move to overseas locations at very low first cost. However the fundamental uncertainties involved with overseas sourcing mean that profits have eroded, rather than improved, and the decision to re-source becomes very questionable.
According to the Aberdeen Group, the main reasons why profits are being degraded by overseas sourcing are:
1. Unanticipated supply chain costs
- Higher-than-anticipated freight costs
- Expediting charges
- Penalty charges from suppliers and
- Logistics and customs fee increases
2. Missed customer demand
On occasions when purchase costs were reduced, unreliable supplier performance and unpredictable leadtimes meant companies could not satisfy unexpected increases in customer demand
3. Unexpected demand shortfalls
Reliability of supply is a significant issue with overseas suppliers. Unless orders are delivered in full and on time, Australian companies have to build up buffer stocks to hedge against supplier unreliability. Shipments can arrive many weeks late, quality can be uncertain, leading to increased safety stocks which increases carrying costs and the potential for later stock write-offs. (The Aberdeen Group, ‘Rethinking China Sourcing: Total Delivered Profit’)
Primarius’ Product Sourcing Solutions alleviates these issues and targets profit improvement by viewing product sourcing from a total delivered profit perspective. Our strategies deliver improved supplier reliability, reduced cost, reduced leadtime, improved order quantities and improved payment terms - all leading to major reductions in the overall business costs and increasing total delivered profit.
The core tenets of Primarius’ sourcing solutions are:
- Primarius sources from quality suppliers who are able to deliver product
- At the right price
- With the right payment terms
- On time, in full
- Every time
- Our suppliers are interested in a continuing partnership, not one-off sales, and strive to continually improve
- Utilising Primarius’ OMS Bureau Services, Primarius is able to provide the framework for closer collaboration with suppliers, sharing forecasts and providing order release schedules. This collaboration assists suppliers to reduce costs and leadtimes, reducing buffer stock that our clients need to hold
- Primarius’ OMS Bureau Service can be utilised to optimise container consolidation opportunities from overseas vendors. This sophisticated modelling tool maximises the opportunity to combine multiple orders and additional suppliers to increase container yield rates, reducing the logistics costs per piece for each shipment.
Primarius works with top level logistics providers who are able to provide full visibility of shipments and documents, allowing order tracking and leadtime reductions to minimise overall leadtimes and costs.