The Pros and Cons of Local Sourcing
Local sourcing is the practice of contracting suppliers located within your country or even city. This term also applies to the suppliers in your home county. However, there is always considerable debate over whether to prioritize the local suppliers or cast your net wider. To help decide, it is wise to look at the pros and cons of local sourcing.
The pros of local sourcing
Local sourcing means faster and more predictable delivery times
The news of supply chain disruptions is prevalent. Also, planning for survival in the new normal the pandemic has left us with is complex. So, it is no wonder that perhaps the most significant advantage of local sourcing is its reliability. Considering that the distance your cargo would need to travel is vastly reduced, the problems it can run into are fewer as well. You would not need to worry about ports or airports closing down and leaving your goods stranded. And, with that increased reliability, it becomes much easier to handle the risk factors of high-profitability deals.
You can work with suppliers much more closely
Another of the advantages of local suppliers is that you can work with them more closely. When dealing with an international supplier a whole sea away, it is natural that you can have at most one or two meetings in person a year. On the other hand, a short trip is all that would take to reach and discuss business with a local supplier. Of course, this means that you can also get them to customize some of their services for you, particularly if you need certain parts that need to be custom produced for your needs or a similar demand.
You would not need to manage your warehouses as meticulously
When your supplier is just down the street or a city or two away, timing deliveries right becomes easier. It means that, instead of having huge shipments that take up lots of space and cause logistics problems, it is possible to have a string of smaller deliveries. And, with the reduced risk and delay factors that we have already discussed, you can also order them, so they arrive before you need to have them shipped out. In turn, this would ensure that your warehouse is kept busy but never overflows or has shipments clogging up space better used for something else. And you could even manage with much smaller warehouses.
You could more easily make last-minute orders
Making a last-minute order is not something you should turn into a habit. However, if any of your suppliers run into problems, or you have a sudden order of goods yourself, you would be able to resolve the situation much more easily. A quick trip or a phone call would allow you to check in with your partners and look for additional goods. And the proximity would make getting the goods to you a breeze, as well. In the end, this extra wiggle room would let you approach your business in a much more relaxed way than ordering goods from overseas. After all, a missing shipment in such cases might take weeks to make up for.
You would not need to deal with import taxes
It is impossible to avoid worrying about taxes when trying to import goods. For any legitimate business, it is not too difficult a hurdle to cross. However, it can be tough to manage when you are just starting, and they are cutting into your profits. That is why, especially for brand new businesses, local suppliers that allow them to bypass this expense are an excellent choice. There are plenty of rare and common U.S. customs clearance issues you would entirely avoid by choosing to go through a local supplier, too.
Enhancing Sustainability and Reducing Carbon Footprint
One of the most significant advantages of local sourcing is its positive impact on the environment. By reducing the distance that goods travel, you contribute to lower carbon emissions and minimize the ecological footprint of your supply chain. With growing awareness of environmental concerns and increasing consumer demands for sustainable practices, opting for local suppliers can significantly boost your company’s reputation and attract eco-conscious customers.
Fostering Community Growth and Support
When you source locally, you actively contribute to the growth of your community and support the local economy. By providing business to nearby suppliers, you help create job opportunities and stimulate economic development. This, in turn, can lead to increased consumer spending within the community, benefiting other businesses as well. Additionally, building strong relationships with local suppliers can foster a sense of camaraderie and collaboration among businesses, creating a supportive network for mutual growth.
The cons of local sourcing
The local supplier might grow over-dependent on your business
It might sound odd. But be it for the supplier or the business, over-dependence is not great. If a supplier starts to prioritize the demands of the company they rely on for the majority of their profits, it can seriously impact their competitiveness in the market. They can grow too specialized to grow their business, and it can be challenging to secure new contracts. There is also the matter of their new product development slowing or halting entirely. It means that they might eventually be left behind and lose their chief source of income as well. It would make demand planning for the buyers difficult as well if planning to branch out to new products.
Canceling a contract can incur a lot of backlash
Hiring local suppliers and helping the local economy is fantastic for PR. However, if you ever need to move on from those contracts, you would be facing an equal amount of backlash and ill-will. No matter how justified your decision might be. The public could still view it as abandoning those same businesses and economies you were lauded for helping.
You might not be able to obtain the best or latest products
Local suppliers might not be able to offer you top-of-the-line goods. They are likely solid and reliable manufacturers, yes. But with the world as a stage for your business, it is always possible to find someone producing better versions of the product you are interested in. So, you are more or less choosing between reliability versus quality. Of course, there are exceptions.
Local suppliers can be less efficient
Even though they are more reliable, local suppliers can have efficiency problems. They tend to be smaller and have a smaller production capacity. Of course, as you work together and prosper, they might expand their business and build more facilities. But then you run the risk of our first cons: their reliance on your purchases growing to the point they practically only cater to you.
It is hard to ensure objective supplier selection
You might, over time, develop a tight-knit bond with the local suppliers, especially if they have been there for you since the foundation of your company. That is natural. However, if your company is developing faster than they are, you might find yourself in need of new partners to keep up with the demand you are facing. At such a time, due to your friendship or perhaps fear of public backlash, it wouldn’t be easy to objectively select another supplier better suited to your needs.
Limited Access to Specialized Products
While local suppliers offer reliability, they may not always have the capacity or expertise to provide highly specialized or cutting-edge products. In industries where innovation is crucial, you might need to explore international options to access the latest advancements and unique offerings.
Higher Costs and Reduced Cost Competitiveness
Local sourcing might come with higher production and labor costs compared to countries with lower manufacturing expenses. This can affect the cost competitiveness of your products in the global market. As a result, careful cost-benefit analysis is essential to ensure that the benefits of local sourcing outweigh the potential price disadvantages.
Dependence on Regional Vulnerabilities
By relying heavily on local suppliers, your supply chain could be susceptible to regional vulnerabilities. Natural disasters, economic downturns, or political instability in the region could disrupt your supply chain and affect your operations. Diversifying your sourcing strategy can help mitigate these risks and ensure a more resilient supply chain.
Now you know the pros and cons of local sourcing, so it should be easier to make an informed decision. Whether you decide to pursue local or international suppliers, remember that your priority is always the development and future of your company.