Why Local Sourcing Makes Sense After COVID-19
By Hugo Britt | July 27, 2021
The effects of the COVID-19 pandemic wreaked havoc on global supply chains. In the past eighteen months, procurement and supply chain professionals have been forced to grapple with border closures, national lockdowns, vendor bankruptcies, depleted workforces, factory shutdowns, shipping delays, stockouts, and erratically fluctuating consumer demands.
For some professionals, these disruptive events have served as a stark wakeup call, a sign that their organization’s existing processes and operational model need to be evaluated.
Why local sourcing makes sense
Indeed, procurement’s priorities have already begun to shift away from cost savings and just-in-time (JIT) supply chains, to focus heavily on risk mitigation, contingency planning, and supply chain security. Investing resources into local sourcing is at the heart of this change, and it makes perfect sense in a post-pandemic world.
Here are 5 benefits to local sourcing.
1. Local sourcing reduces the fear of geopolitical conflict and disruption
In the months leading up to the outbreak of COVID-19, there were already several factors threatening the stability of complex, global supply chains.
The Trump administration’s protectionist policies were contributing to mounting trade tensions between China and the U.S. and threatening a full-blown tariff war. Throw in natural disasters, lack of supply chain visibility, the rising costs of sourcing overseas, and the eventual outbreak of COVID-19 and it seems like a no-brainer to reduce, if not eliminate, dependence on risky or single-source overseas suppliers.
By sourcing locally, procurement and supply chain professionals can sidestep almost all of these risks, while supporting their local economies.
2. Local sourcing enables organizations to adapt quickly to shifting consumer demands
Organizations have worked to establish global supply chains that facilitate the shortest possible lead times at the cheapest price. But as the past year has taught us, this is a system that will quickly collapse under pressure.
At the height of the pandemic, many organizations failed to adapt to changing demands. In some cases, this was due to stockouts. In others, it was an inability to quickly pivot to meet evolving needs and preferences – something which ultimately led to unhappy and disloyal customers.
The answer to this challenge isn’t to simply hold additional excess inventory. There’s no point in mass-producing a product in China and storing surplus stock in warehouses if no one is going to be interested in buying that product three months down the line. But a JIT supply chain model is also too risky, and it fails to accommodate the consumer’s newfound preference for purchasing niche or personalized products.
Local sourcing can provide the flexibility for procurement and supply chain professionals to best meet the needs of their clients, customers, and workforce, whether it’s producing more stock at short notice, or tailoring products to cater to new and evolving trends.
3. Local sourcing is more sustainable and more ethical
Local sourcing is one of the easiest ways for procurement and supply chain professionals to drive sustainability. A drop in delivery and transportation times will help to decrease an organization’s energy use and carbon footprint, as will cutting the length of time products are kept in storage. In addition, sourcing locally negates the need for long-haul overseas trips.
There has been much discussion about how to achieve a green economic recovery post-COVID-19. Climate change experts and activists have repeatedly expressed concerns that the fight against climate change will take a backseat as leaders prioritize financial stability over the environment. But organizations that commit to both will appeal to the values of both their customers and their workforce.
4. Local sourcing facilitates meaningful buyer-supplier relationships
A lack of supply chain transparency is a key concern for procurement and supply chain professionals who manage sprawling global supply chains.
By sourcing locally, professionals can meet with their suppliers in person, nurture more meaningful relationships, better resolve conflicts, communicate with clarity, and exert greater control. There will be better opportunities for negotiation, collaboration and, innovation and, as a result, suppliers will be more loyal and provide a higher quality service.
During the pandemic, organizations without a faithful and reliable supplier base were among those who suffered the most, struggling to secure the components and products they needed at short notice.
5. Local sourcing is becoming more cost-effective
Historically, organizations opted to offshore their manufacturing processes and purchase products and components from overseas to cut costs.
But the price gap between sourcing overseas and sourcing locally, once so significant, is slowly depleting thanks to rising labor costs in developing countries and the huge expenses associated with logistics and shipping. Procurement and supply chain professionals must assess whether the, increasingly minimal, cost savings achieved via overseas sourcing outweigh the additional risks.
During the pandemic, components for test kits and ventilators and personal protective equipment (PPE) were in drastically short supply. Imagine how differently things might have turned out had healthcare providers had access to all the equipment they needed from local suppliers as soon COVID-19 broke out? It’s pretty hard to put a price on that.
Move faster, save more, and look better doing it. Contact Una to see how adding a group purchasing organization to your overall approach to sourcing can help quickly lock in big discounts.