Purchase versus Production

There are many options to consider within global trade when it comes to production. There is the opportunity to assess at what stage of the production process a product, or a part for a product, should be purchased instead of being produced in-house. Such decisions are complex, given the variables to consider including; produced cost, product quality and quality checking costs, transport costs, customs checks and duty costs, additional taxes, additional packaging, flexibility in product adaptability, reliability of supply, production capacity, and exchange rate fluctuations, to name but a few. 

So many businesses focus on the lowest ex-works price of a finished product, and fail to properly understand not just the ‘delivered cost’, but the ‘whole cost’ of a product, including factors that play a part in the value of a product to a producer. 

Customs is a critical factor to consider when purchasing a product. An example being where there is a trade tariff preference in one country and a trade tariff barrier in another. This will make all the difference in the viability of a product from one country compared to another. 

Less predictable factors such as the Suez Canal blockage, the conflict in the Red Sea, and Covid, all create major impacts on the availability of global transport and the cost of that transport. The reality is that the more distant the source, the more likely there will be interruptions to supply, especially where just-in-time production processes are in place.