In this Procurecast video we discuss how procurement processes affect organizations, particularly in regards to cost savings. Implementing procurement best practices can lead to dramatic savings for businesses.
Is it cheaper to process and package goods in China?
The question addressed is whether it is more cost effective to ship raw goods from the United States to China for processing and packaging, and then ship the final product back to the U.S. for sale.
Should it be cheaper to do it all in one place? Not always. We’ll look at the Alaskan Salmon industry as an example.
There are 3 factors contributing to Alaskan Salmon companies saving money and increasing profits:
Factor 1: Labour Costs
Over the course of the last decade, Chinese labour costs have risen by about 12% but, they still remain a fraction of U.S. labour costs
Factor 2: Shipping and Logistics Costs
Shipping vessels are getting larger. Super container ships can carry 18,500 containers which allows businesses to ship more units at a time while saving on each unit shipped, particularly due to fuel costs which can be up to 35%.
Factor 3: Chinese Demand
Not all Alaskan Salmon shipped to China returns to the U.S. Since there is a strong marketing within China for the prized good, much of the raw goods are consumed and never returned.
Procurement practices are unique for each business and this example is case specific.