Global Sourcing a Way to Reduce Manufacturing Costs

Global Sourcing a Way to Reduce Manufacturing Costs if You Seize the Opportunity

Global sourcing is a term used to describe practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs.

For global companies who have already spent lots to time, energy, and money in setting up manufacturing plants and distribution systems to take advantage of these efficiencies they have increased their competitive advantages over their smaller competition. This same competitive advantage can be found in companies who provide global manufacturing sourcing that can bridge the gap between the different countries and cultures. One of those knowledge based companies is Padtech based in Delta, B.C.

Padtech transformed themselves from a 20 year manufacturing company who saw the need to make the switch from a small manufacturer to becoming knowledge based global manufacturing sourcing company. What is a manufacturing sourcing company and where does it fit in the manufacturing industries? Good question, we asked Dan Lionello, President of Padtech what the concept is and how they reduce the cost of manufacturing for its clients.

Padtech combines its expertise of understanding the manufacturing process from beginning to end and using the knowledge of manufacturing workflow to develop a process to in the last several years which combines taking a client’s engineering drawings into a common manufacturing production document, with its relationship based global network of  manufacturers in foreign countries to create a “Manufacturing ecosystem” which has saved its clients anywhere from 15 to 50% on the manufactured cost of their goods.

Common examples of globally-sourced products or services include: labor-intensive manufactured products produced using low-cost Chinese labor, call centers staffed with English speaking workers in the Philippines and India, and IT work performed by programmers in India, China, and Eastern Europe. While these examples are examples of Low-cost country sourcing, global sourcing is not limited to low-cost countries.

The global sourcing of goods and services has advantages and disadvantages that can go beyond low cost. Some advantages of global sourcing, beyond low cost, include: learning how to do business in a potential market, tapping into skills or resources unavailable domestically, developing alternate supplier/vendor sources to stimulate competition, and increasing total supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated with different cultures and time zones, exposure to financial and political risks in countries with (often) emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality.

It is some of these pitfalls or hurdles which have prevented many smaller Canadian companies from exploring further the potential manufacturing partnerships in other parts of the world. Padtech however, has created this system of where they become the middleman between the North American customer and its network of partners throughout the rest of world to ensuring the manufactured products live up to the specifications and quality required by its customers.

Padtech is essentially an outsourced service with a major advantage over a smaller company trying to do this on its own, it’s the relationships built by them over the last few decades in other cultures and their ways of doing business to ensure that their customers get what they want at the time they want. They have learned to build those bridges with the other cultures which in North America many companies do not take only a year to build but in some cases several years before a supplier will do business with an unknown prospect to them. Padtech simplifies the process even further by developing a framework which takes the engineering requirements and developing a blueprint which engineers in other countries can decipher and use much more easily than a standard engineering document from a company in North America. What this also does is reduce the risk in prototyping and gives more transparency to the process instead of having the whole process done in house.

For global sourcing the investigation is definitely worth the risk as globally production is growing and being able to potentially reduce the manufacturing cost while maintaining product quality might be able a strategy to improve profits at the end.

Written by Richard Wong, CMA                   Email: rwong@firstchoicecapital.ca

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