IN THE JOURNAL | GLOBAL PERSPECTIVES
The hidden costs of broken supply chains
With tariffs so low, what's holding up cross-border trade?
October-December 2013
By: Jean-Pierre Fellenbok , Mark Gottfredson

The message is that supply chain barriers can significantly upset conventional cost and revenue calculations. For instance, Bain estimates that addressing supply chain barriers would reduce supply chain costs by 60 percent for rubber in Southeast Asia and result in 10 percent lower total landed costs (see Figure 2).

Most companies involved in cross-border trade have become experts in standard return- on-investment analysis to justify investments abroad. They know how to evaluate tax breaks, labor costs, capital expenses and the costs associated with logistics, sourcing equipment and finding raw materials. But often these traditional analyses fall short when it comes to capturing the true cost of doing business.

Breaking down the costs

Over the years, Bain has worked with many companies that were weighing the merits of trading with Mexico or moving production there, especially after the North American Free Trade Agreement ended most formal trade barriers on the continent. While a traditional analysis might show that Mexico has a 25 percent cost advantage relative to the US and Canada, more than half of that advantage could be eliminated by supply chain friction costs. In doing the analysis, we’ve been able to quantify those costs and how they affect a company’s real return on investment.

COMMENTS
Emelia Ingram 10/24/2017 11:45 AM
Supply chain is an important part when it comes to economic and in the whole industry. Businesses needs to invest to their operations so that they can be more competitive but they need to monitor the supply chain of course. If they don't monitor their supply chain costings it will be a big risk for them and they will have more expense rather than having an affordable and high quality suppy chain. Learn more about supply chain costings here: BR International Supply Chain Services.
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