Africa is the top emerging market in the world, and it is showing a lot of promise. With shrewd supply chain management, the sky is the limit for businesses on the continent. This has made sourcing more vital for supply chains on the continent.
Sourcing is the beginning of any supply chain system and would no doubt be vital to supply chains across the continent.
As businesses in Africa continue to spring up with innovative solutions, especially after the economic challenges post-COVID-19, supply chains will be significant in helping businesses gain a competitive edge on the world stage.
However, operating supply chains on the continent has its fair share of challenges. Ranging from insecurity to poor infrastructure and unfavourable business policies. But in the face of adversity, there are always opportunities to strategize and innovate.
Sourcing strategies, while numerous, can be effective if applied right. A few are listed in this article; read along and let me know your thoughts in the comment sections.
Five Unique African Sourcing Strategies and Why They Work.
Sourcing is not unique to Africa. In fact there are ideally seven sourcing strategies supply chains across the world can leverage for effectiveness. However, considering the unique position of businesses and supply chains on the continent, not all of them will work for the average supply chain. This is why these five strategies are particularly interesting.
1. Outsourcing within the continent
Modern businesses or supply chains have significantly evolved over the years. The supply chain has gone from the days of linear connections between a supply chain and its partner organizations to a supply chain interconnected on a global scale.
African businesses do not need to outsource outside the continent, especially when there is such a great list of advantages to partnering with other companies within the continent. There is also the case of the cheaper cost of products within the African continent.
Think of it this way. If supply chains outside the continent want to partner with businesses within the continent because of perceived advantages, why don’t supply chains within the continent explore these advantages for themselves?
Outsourcing parts of the supply chain within the continent would also reduce the supply chain risk, leading to fewer disruptions.
2. Near Sourcing or Localization
In outsourcing, the supply chain partners with another business organization to manage aspects of the supply chain effectively. However, near sourcing is more about global supply chains moving the manufacturing arm of the supply chain closer to their end consumers.
Think Coca-Cola and its many bottling companies across the globe.
Near sourcing has excellent advantages for any business and supply chain, especially with the current crisis supply chains are facing across the world. Two major reasons for near-sourcing are transportation costs and risk factors.
Transportation is one of the major costs in the logistics and supply chain. In any typical supply chain, it may amount to close to 60% of the manufacturing cost. Eliminate that, and your supply chain can save quite a lot of money. Although this cost is significantly more when transporting goods within Africa.
However, the second reason is more friendly. Long-distance supplies expose any supply chain to significant risk. The farther the distance, the more threat the supply chain faces; the opposite applies to shorter distances. To tackle the risk of long-distance sourcing, localization or near sourcing is an excellent way for African supply chains to eliminate the risk of downtime.
3. Choosing Between Many or Few Suppliers
This choice is one of the most important African sourcing strategies. The great deliberations of any supply chain management is whether to engage many or few suppliers. They both present great arguments for any supply chain, but ultimately, as a supply chain in Africa, it is about what is more important. Less risk or cheaper products.
Engaging many suppliers would leave your supply chain protected from the risk of disruption or downtime. It will also enjoy great flexibility and agility. However, on the other side of the coin, the supply chain with few suppliers can leverage this to force their suppliers to give them lower costs of raw materials since they are buying more from fewer suppliers—a typical economies of scale move.
The choice between these two strategies or sourcing options may depend on the type of supply chain. Highly volatile supply chains will typically use multiple suppliers, while a stable supply chain can exploit a few suppliers.
4. Vertical Integration
This is another sourcing strategy that takes advantage of the economies of scale principle. As businesses and their supply chains continue to grow across the African continent, the strategy would be a great way to enable them to compete globally increasingly.
Vertical integration entails organizations taking charge of multiple arms of their supply chain. They do this by acquiring or establishing their suppliers or distributors. The initial capital investment can be strenuous for the supply chain, but the strategy also has upsides.
Some of the upsides are reduced cost of raw materials, more efficiency in the supply chain, and more control leading to less supply chain disturbance or disruptions.
Vertical integration happens in two modes: forward and backward integration. An example of a company using vertical integration is Pepsico and its acquisition of KFC.
5. Joint Ventures
The idea of joint ventures is a type of partnership where two or more supply chains go into a business by jointly contributing resources, creating a win-win situation for all parties involved.
The main idea of joint ventures is to facilitate a new product or move into a new market. In Africa, the diversity of cultures and ideas is second to none. This means that while expanding into other African countries, businesses or organizations may want to partner with existing companies in that region to give them an edge in the new market.
There are a few advantages for organizations thinking about implementing this strategy. They are access to more resources, both businesses’ capacity to increase significantly, and access to more distribution and supply channels.
Wrap Up
An excellent sourcing strategy will significantly elevate the supply chain of any business, but the trick is to adopt strategies that can navigate the internal and external factors that affect that supply chain.
For instance, if there is an issue with finding suppliers in a particular region, a business can step in and integrate that aspect of the supply chain internally.
The factors affecting supply chain management in Africa are mostly out of the control of businesses on the continent. The African sourcing strategies supply chain managers in the continent adopt will go a long way in determining the success of their supply chain.
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Obinabo Tochukwu Tabansi is a supply chain mastro and writer with a decade of experience working in different facets of the supply chain. Today he is living his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is Africa’s fastest-rising supply chain blog, helping professionals, business owners, and curious minds navigate the supply chain complexities on the continent.
