Question

What elements of risk are there in terms of sourcing and procuring goods from a Western source versus a low-cost country source such as Vietnam?

What type of relationship would be most appropriate with a high-risk/high-value supplier versus a low-risk/low-value supplier?

Does value for money versus price help make a more informed procurement decision

Answer 1

Elements of risks in terms of sourcing and producing goods from a western source versus a low cost country source such as Vietnam are -

Security Risks - Many Developing countries identified for low cost global sourcing are subject to political uncertainty or even internal political turmoil.So there is risk involved in terms of whether our offshore supplier will be able to provide the goods successfully.

Cost Risk- There is different cultures, different time zones so there can be many hidden cost when a company go for global sourcing . And Also monitoring global manufacturers means greater cost.

Quality risk- If global sourcing is not managed well then it may lead to quality problems and then it may damage the brand of company and result in huge financial penalty .this risk is more with low cost sourcing countries

Intellectual property risks - the elements like design , engineering ,materials etc can be exposed easily so there is a risk of losing intellectual property when you are sourcing goods from western countries .this risk is low in case of low cost sourcing countries.

there was three main problems in Mattel's case which caused product recalls -

1 First factor which caused the recall of product was designing problem .most of the recalls were resulted from defective designing of products that could cause injury to childrens.

2. Second problem resulted from the misuse of goods by customers.this happened because mattel could't spot the problem until their products sold to customers (childrens) who always find ways to play with their toys in the way that could result injury.Mattel should cunduct testing studies on its products before making orders to its venders

3 Third problem comes from manufecturing error of its vendors. This happened because those vendors used the materials from unapproved suppliers in order to cut cost to meet with low cost requirements.

however we can't say that outsourcing was the main cause of product recalls problems because outsoucing actually helped Mattel to stay competetive in the market and become the market leader for more than 4 decades before May 2007.the problem was rooted in the supply chain management of mattel itsself .Mattel inspected the goods when production was already done .mattel should thoroughly inspect the material that outsourced venders using before production of goods to avoid any possible manufacturing error .And also Product misuse & designing happened because of the mattel's negligence and lack of product testing before ordering procurments from its outsourcing vendors .