Local and global sourcing are two sourcing strategies supply chains use to locate the right raw materials and services for their operations.
When sourcing raw materials and services, the supply chain typically has two objectives: speed and cost. This is what informs its decision-making on what type of sourcing to favour.
However, considering the current economic climate, these supply chains have to strike a balance between the two.
A balance helps them satisfy their customers while ensuring lower costs. Remember, a supply chain is in business to ensure customer satisfaction and reduce costs.
In this article, we will discuss guidelines that can help your supply chain know when to favour either local or global sourcing. The knowing is what strikes the balance between the two.
Let’s dive into these guidelinesโฆโฆ
1. Consider the Nature of the Product
The nature of the product plays a significant role in whether the supply chain needs to source the goods locally or from a further distance because of perishability and distance.
When a product has a low shelf life, transporting it over a large distance will likely prove unwise for most supply chains. Although there are exceptions.
For instance, when transporting by air, the distance means little, but that will be too costly for 99% of supply chains out there.
Another scene where this is fine is when there is no other local option, which is rare. However, when this is the case, there is usually a storage system built into the transportation vehicle.
But as you already guessed, this cost money. The price is usually transferred to the consumer. However, this scenario could be problematic because there is usually little room for price flexibility.
2. Total Cost of Ownership
The total cost of ownership is the total amount it takes to purchase and deliver a product from source to destination. A typical example is buying a product from China in large quantities and hiring a vessel to transport it.
The total cost of ownership is the price of the product and shipping cost, including custom payment, insurance, and any damages or losses that may occur.
When balancing local and global sourcing, factoring all of these can save your supply chain a ton of money. Buying the same product mentioned above locally may cost more initially if you are comparing each unit to the version of it bought from China.
However, when you factor in the total cost of ownership, the long-distance cost may swallow up the local. When this happens, these supply chains must prioritize the local over the global.
On the other hand, when the reverse is the case, it only makes sense to prioritize global or long-distance sourcing over local. The bottom line is the entire costing story is in the total cost of ownership. Understanding it and planning with it makes a lot of difference.
3. Demand Forecasting and Market Fluctuation
When sourcing, in any case, the demand for the product and market fluctuations play a vital role in deciding what type of sourcing to undergo.
When engaging in the global sourcing strategy, the distance is often an issue because of the time it takes to get the product from source to destination. On the other hand, local sourcing may take a day or two.
If the supply chain favours global sourcing and demand outstrips the forecast, then the supply chain will have an issue bridging that gap. This is because they cannot do anything about the goods in transit.
However, in many cases, they can fall back on safety stocks and local suppliers, even if it is a bit expensive. But to do this effectively, the local supplier has to be a part of the supply chain partners. That means all the onboarding and other vetting processes have already been settled.
It will help the supply chain escape the stress of doing everything in a hurry when the problem is right in their face. Rush often precedes errors.
Balancing the local and global sourcing will require a reliable mix of local and global suppliers. It ensures the supply chain can better manage this sort of challenge.
4. Inventory Turnover and Lead time
A high inventory turnover rate often pushes supply chains to local suppliers. This is particularly the case when the price is not a problem for the customers.
This is because when there are high inventory turnovers, acquiring enough goods to combat the lead time of global sourcing may be too much for most supply chains.
So, supply chains might decide to partner with local counterparts and gradually do the โtake and payโ model. It is faster, less complex, and the market is ready for it.
It will often be okay to do both of them alongside each other. Engaging local suppliers helps the supply chain reduce the initial capital needed.
5. Transporting Risk
Transportation can be a big issue. It doesn’t matter whether it is local or global sourcing, especially when factoring in the risk involved. It could be external or internal risks, but they are equally devastating.
For instance, the breakdown of vehicles (ships, trucks, and trains) could impact the lead time of the sourcing process. When going over long distances, this could be devastating, especially when getting technicians to fix it is a problem.
You also want to consider pirates and theft of goods. Situations like this are not rare, but they can greatly disrupt the goods. Yes, there may be insurance in place. But if the goods do not arrive on time, your customers are left unsatisfied, which becomes a problem for the business.
When using global sourcing or transporting the goods over a long distance, analyzing these risks can make all the difference. If it is a local sourcing, it is much more manageable for any supply chain.
๐๐ฎ๐น๐ฎ๐ป๐ฐ๐ถ๐ป๐ด ๐น๐ผ๐ฐ๐ฎ๐น ๐ฎ๐ป๐ฑ ๐ด๐น๐ผ๐ฏ๐ฎ๐น ๐๐ผ๐๐ฟ๐ฐ๐ถ๐ป๐ด ๐ฐ๐ฎ๐ป ๐ฑ๐ถ๐ฐ๐๐ฎ๐๐ฒ ๐๐ต๐ฒ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ถ๐ผ๐ป ๐ผ๐ณ ๐ฎ๐ป๐ ๐๐๐ฝ๐ฝ๐น๐ ๐ฐ๐ต๐ฎ๐ถ๐ป. ๐๐ ๐ฎ๐น๐๐ผ ๐ต๐ฒ๐น๐ฝ๐ ๐ณ๐ฎ๐ฐ๐ถ๐น๐ถ๐๐ฎ๐๐ฒ ๐๐ต๐ฒ ๐ฎ๐๐ฎ๐ถ๐น๐ฎ๐ฏ๐ถ๐น๐ถ๐๐ ๐ผ๐ณ ๐ฟ๐ฒ๐๐ผ๐๐ฟ๐ฐ๐ฒ๐ ๐ถ๐ป ๐๐ต๐ฒ ๐๐๐ฝ๐ฝ๐น๐ ๐ฐ๐ต๐ฎ๐ถ๐ป ๐ฎ๐ป๐ฑ ๐ต๐ฒ๐น๐ฝ๐ ๐ฎ๐๐ผ๐ถ๐ฑ ๐ฑ๐ถ๐๐ฟ๐๐ฝ๐๐ถ๐ผ๐ป๐.
๐ช๐ต๐ถ๐ฐ๐ต๐ฒ๐๐ฒ๐ฟ ๐บ๐ฒ๐๐ต๐ผ๐ฑ ๐๐ต๐ฒ ๐๐๐ฝ๐ฝ๐น๐ ๐ฐ๐ต๐ฎ๐ถ๐ป ๐ฑ๐ฒ๐ฐ๐ถ๐ฑ๐ฒ๐, ๐ฎ ๐บ๐ถ๐ ๐ผ๐ณ ๐ฏ๐ผ๐๐ต ๐ถ๐ ๐๐๐๐ฎ๐น๐น๐ ๐๐ต๐ฒ ๐๐ฎ๐ ๐๐ผ ๐ด๐ผ.
Obinabo Tochukwu Tabansi is a supply chain digital writer (Content writer & Ghostwriter) helping professionals and business owners across Africa learn from real-world supply chain wins and setbacks and apply proven strategies to their own operations. He also crafts social content for logistics and supply chain companies, turning their solutions and insights into engaging posts that drive visibility and trust.
