Low Cost Country Sourcing: Canadian Manufacturing Perspective

Executive Summary

Business Drivers

Canadian manufacturing supply chain managers are now faced with the challenges of efficiently combining low cost, global sourcing and supply chain agility at the same time. Low Cost Country Sourcing (LCCS) is strategically important for 67 percent of Canadian manufacturers. On time delivery, short lead time fulfillment, predictability, variable demand and customized orders/products capability are key supply chain agility factors for more than 85 percent of Canadian manufacturers. The main drivers for LCCS implementation are based on competition pressures, gaining cost advantages and responding to customer pressures.

Origin of Products Sourced

China is the main location of LCCS of goods with more than 90 percent of Canadian manufacturers sourcing from that country. China is expected to maintain and increase its dominant position in this area while India remains to be a major source of LCCS in the services functions.¹

Only 60 percent of Canadian manufacturers sourced more than 50 percent of the LCC products that qualify as intermediate goods, implying that manufacturers are playing the role of wholesalers for a large portion of their LCC imports.¹

Key Performance Indicators (KPI)

The minimum lead time for products sourced from China is approximately 3 times that of products sourced from North America. More than 70 percent of manufacturers achieve on-time shipments of Canadian and U.S. products, but less than 10 percent of manufacturers achieve on-time shipments through LCCS.¹

A substantial percentage of manufacturers have indicated an increase in their lead time, inventory level, logistics cost, Total Landed Cost (TLC) and a decrease in the quality of the goods since initiating LCCS.

Best in Class Analysis

Of manufacturers who are able to achieve LCC on-time shipments more than 75 percent of the time, 83 percent of them are engaged in planning forecasting and demand planning with LCCS suppliers. Supply chain visibility and collaboration with LCCS supplies are also other best practices used to facilitate on-time shipments.¹

Best practices of manufacturers who decreased their TLC include establishing secondary source(s) in less risky regions/countries, using air transportation mode and having dedicated resources/team on global sourcing.