Make or Buy

A US-based manufacturer of a high-quality metal consumer goods product was concerned that across a particular product line escalating material, labor costs, and machine efficiency, might be putting them in a less competitive market position and lead to declining margins and even a potential loss. The market would not allow them to increase prices.

K2 Sourcing was hired to help determine if they should continue to produce the product or find an outsourced partner. The company needed a team experienced in items for resale sourcing that had global reach. K2 Sourcing has associates in 14 countries which immediately extended their capacity and reach.

To benchmark the market, we conducted an RFP that consisted of a K2 Sourcing recommended total cost model breaking out components like materials and labor. This would allow Cloud Source, K2 Sourcing’s RFP application, to automatically compare detailed costs the manufacturer’s internal baselines so gaps could quickly be identified.  

The RFP process was conducted with transparency. Potential suppliers were required to sign NDA’s and were told upfront who the current US manufacturer was. K2 Sourcing screened over 60 potential suppliers, 16 of which agreed to sign the NDA. These suppliers were taken through the K2 Sourcing 20 step 200-point strategic sourcing quality checklist. 10 suppliers responded which provided benchmarks from China, India, and Europe. Multiple suppliers offered savings of greater than 50%.

The manufacturer learned they were paying far too much for materials and, as suspected, learned their production methods needed additional automation to become competitive. The manufacturer requested sample product while contemplating if they should launch new sourcing projects to review raw materials and automated production equipment.