Sourcing Talk #1 – Why is Product Sourcing Important
Product Features vs Price
Traditionally when sourcing a product, the key factors associated with competitive strategy were whether your product was to be differentiated based on unique features or price. If features, the product price just need to be affordable by a significant enough portion of the market to make the sales a viable business. Think of the new mid-engine Chevy Corvette. So many people want it the entire manufacturing capacity for the next year is sold out. If low price is the competitive differentiator, you need to come in lower than other similarly designed products and always keep your eye over your shoulder in case a competitor figures out a cheaper way to make the product. Think about two identical products sold on the Internet, one with free shipping and the other with a shipping cost of $0.75. People will go for the one with free shipping.
Today these traditional business models are in a state of flux. Customers demand feature differentiation and a highly competitive price.
From Our Experience
We make a children’s cutlery set for an innovative Florida company named KidVanna. The over molding technology and design innovation which goes into the product far exceeds similar products sold on Amazon. Yet when consumers search for the product by name, Amazon populates the bottom of the screen with other children’s cutlery with fewer features at a lower cost. These lower price items drive his pricing, even though the product is differentiated based on features. This is the new norm. For broad consumer acceptance, complex production processes must be achieved at a price dictated by products with less sophisticated features. Figuring out how to achieve this balance in the sourcing gordian knot we have gotten good at untying.
No segment of the market is immune to these competitive pressures. We make an exacting fiber optic cable splitter for one to the world’s largest fiber optic cable companies. The standard of production is zero defects. Yet we were selected to make these products because we figured out a way to produce the splitters at a cost 50% below the cost of other vendors.
Sometimes this means sourcing products in countries like Pakistan where other firms fear to tread. The advantages can be spectacular for our clients who are outside of a narrow set of industries. People who sell dental instruments know Pakistan well. Over 80% of the dental tools used in the world are made there. We have been active in Pakistan since 1994, first in the production of state-of-the-art personal protective gear like gas masks, and later with medical devices and high fashion leather goods.
Many people today are concerned about tariffs and the trade war with China. We certainly get how tariff uncertainty can be a disrupter in making sourcing decisions. In the grand scheme of things, it is but one of many factors we consider in helping our clients create and maintain a sustainable completive advantage.