For those who do no think much about the trade-offs between lower product costs and higher overall costs and reduced profitability. April 25, 2007 George Stalk, senior vice president of the BCG, discuss in a article for Supply Chain Management Review how to reduce the time and variability in the China-anchored supply chains, as opposed to the conventional profit-improvement efforts, in order to reduce costs, boost margins, and improve competitive advantage. According to Stalk, “rarely do executives think of supply chain investments as an outright source of competitive advantage. They underestimate the magnitude—and the impact on profitability—of the hidden costs of longer supply chains, reduced flexibility, and lost gross margin from missed sales and write-downs.  In their rush to source from China, many companies are blindly walking into a strategic trap. The trap is thinking that sourcing from China will result in lower product costs when, in reality, the supply chain dynamics will drive up overall costs and reduce profitability—thereby creating an opening for a competitor. Their only salvation is if all their competitors make the same mistake. But if they have competitors that do not source from China or that do focus on supply chain speed, their competitors will be competing with a different set of economics. The first company to see and correct the strategic error of sourcing from China without an appropriate investment in supply chain dynamics to minimize costs will seal the fate of its competitors.” [Walking into the trap] “show more in the company's economic profits than in the accounting profits. Accounting profits capture the "generally accepted accounting practice" (GAAP) costs, revenues, and losses. Economic profits capture the hidden costs of lengthening supply chains: increased inventories, overproduction and underproduction, write-downs of excess inventories, and, most important, the lost margins from stockouts. In reality, accounting profits may be positive while economic profits are not.” […] “So what can companies do? • They can aggressively manage their China-based supply chain, looking for ways to squeeze time from it that competitors haven't identified or exploited. • They can explore alternatives that will minimize adverse effects on the supply chain. These alternatives may include options—such as increased use of air freight—that appear costly but may actually result in lower overall expenditure by reducing hidden costs. • They can invest in premiums and capabilities. Premiums are the extra payments required to get preferred treatment from ground, sea, and air shippers, port services, and other suppliers. […] [Capabilities] can include cross-docking, facilitated portside handling, and "track and trace" capabilities to keep boxes moving.” You can access the full article here