America Calling
The focus has been on China and India lately, but the US could be the next low-cost country for sourcing goods and materials, says Bill Michels
I was recently conducting a best practice review of purchasing for a plastic molding company with headquarters in Paris, France. I was curious about how the company sourced its tooling. It is no surprise that the tooling industry has been declining in the United States and growing in Asia as many manufacturers migrate to low-cost-country sourcing.
As I asked my typical questions, I was surprised by the response from one of the French executives. He said that from his perspective one of the low-cost-countries on his list was the US. He considered purchases there as investments with good value. Other European business executives have since told me the same thing.
Their statements certainly brought home the reality of the changing status of the US within the global economy. Falling prices for the US dollar over the last two years have changed the equation for American-made goods.
When the Euro was worth US$1.25, there was a certain equilibrium in the pricing of goods between the US and European countries. Now that the Euro buys almost US$1.60, it is equivalent to a 20 per cent drop in price for US goods.
Clearly Volkswagen is doing the math. The German automaker recently revealed it is looking at three possible US locations for an assembly plant.
From my point of view as a purchaser, this is the time to reconsider anything you are sourcing from Europe or Japan. The value of the dollar over the last two years has dropped significantly against the British Pound, Japanese Yen, and even the Chinese Yuan. If you can buy the same item in the US you can capture some short term gains.
When you calculate the savings, be sure to factor in any gains you might earn from shortening the supply chain. You are likely to have lower transportation costs – especially as fuel prices spike – as well as fewer risks of interrupted supplies. That might allow you to put tighter controls on inventory and generate some cash flow savings along the way.
While many of us do not expect the current economic conditions and currency to remain weak for the long term, we can take advantage of the short term opportunities. The weak currency is opening up opportunities for many companies. History suggests that these moments don’t last forever, and smart companies are figuring out how to capitalise on them while they can.
Bill Michels is CEO of ADR International (North America)
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