A short video on: “Three ways Procurement can save you Money.”
Why is it cheaper to send goods from the US to China to have them processed and packaged, only to be sent back to the US for sale? Shouldn”t it be cheaper to do everything in one place?
Well not always. To answer this question, I”ll use the Alaskan salmon industry as a case study. For example, there are 3 factors that will contribute to a company saving money and increased profits.
1) The first would be labor costs. Over the course of the last decade Chinese labour costs have risen by about 12%, but they still remain a fraction of us labour costs.
2) The second factor is shipping and logistics costs. Because vessels are getting larger, for example the super-container ship which carries 18,500 containers, allows us to ship more units at a time and reduce fuels costs by up to 35%.
3) The third factor would be Chinese demand for Alaskan salmon. Not all salmon processed in China returns to the US. A lot of it is consumed in China.
Just remember this is case specific. Each industry must determine if they can add value this way.