When you need to find a new supplier, service provider, or manufacturer, the unavoidable question you'll face is whether to stay local or go global. Given the significant benefits that local sourcing has on the environment, it can feel like you’re standing at the crossroads of cost-effectiveness and sustainability. However, the truth is that each approach has a range of advantages and drawbacks that could affect your decision.
To gain a better understanding of the two sourcing methods, we'll first discuss the key distinctions between them. Next, we’ll explore the reasons for favoring local sourcing. Lastly, we’ll examine the situations where tapping into the global supply chain is more advantageous.
What Is Local Sourcing?
Many companies source their products based on where they can be purchased for the least amount per item, which helps them stay competitive in the market. Global sourcing, or acquiring goods and services across geopolitical boundaries, is a common procurement strategy for many businesses. Global sourcing also refers to a manufacturer accessing raw materials or components from international suppliers rather than from the buyer’s home country.
On the other hand, local sourcing refers to acquiring materials or products from suppliers, providers, or growers near your business location. Local sourcing can involve using contractors within a business’ home country, or it can bridge the gap even further by using contractors in the same city, county, or state.
Advantages of Local Sourcing
Environmental Benefits
The most positive effect of local sourcing lies in its wide-ranging ecological benefits. Shorter transportation for trucks and trains results in a smaller carbon footprint, decreasing harmful emissions and minimizing the ecological impact of your supply chain. Given the increasing awareness of environmental issues and rising consumer expectations for sustainability, embracing local sourcing can help your business align with these eco-conscious trends.
Stronger Supply Chain
In the current climate of widespread supply chain disruptions, it's no surprise that one of the most significant advantages of local sourcing for businesses is reliability. The potential for stranded goods or lost shipments increases with every mile traveled, and it can take weeks to replace a missing order from international sourcing. If you source locally, ports or airport shutdowns and increased journey times won't concern you. Additionally, you can replace a missing shipment in days rather than weeks.
Order Flexibility
Last-minute orders may not be a regular occurrence. Still, it's essential to have this option available should you need it. Suppose any of your suppliers encounter issues or you suddenly require additional goods. In that case, the proximity of your partners can be a lifesaver. A swift visit or a simple phone call with local manufacturers can help you quickly address the situation and secure the necessary items with ease.
Quality Control
When dealing with overseas suppliers, you may encounter varying industrial or technical standards that differ from your home country's requirements. Closer proximity makes it easier to maintain quality control, as businesses can easily visit local suppliers to inspect products before they are delivered en masse. Local suppliers can also make last-minute changes to orders and deliver products customized to your needs.
Community Engagement
Local sourcing is an excellent PR strategy, allowing you to showcase your commitment to investing in and supporting your local community. Building strong relationships with local suppliers can nurture a sense of camaraderie and collaboration among businesses, fostering trust and a supportive network for mutual growth.
New Revenue
Choosing local suppliers can significantly boost your company’s reputation. A stronger connection between producers and consumers ties you to the community. At the same time, greener supply line choices attract eco-conscious customers. Local sourcing also opens up new sources of income from ESG investors, who look closely at company culture and transparency when evaluating potential partnerships.
Strengthens the Local Economy
Local sourcing is vital in fostering community growth and supporting the local economy. By engaging with nearby suppliers, you actively generate job opportunities and stimulate economic development in your community. This engagement, in turn, has a ripple effect by boosting consumer spending within the community, ultimately benefiting other local businesses. Depending on the industry, local production can make community systems more resilient and less vulnerable to supply chain disruptions.
Predictable Delivery Times
Local sourcing reduces the distance goods need to travel, making it easier to fill orders with a quick turnaround. Business-to-business delivery also reduces lead times and takes the guesswork out of delivery through third-party couriers. Your products are also less likely to be subject to travel restrictions, import regulations, or customs holds, making them less prone to delays and disruptions. You also have the option of accepting smaller shipments instead of one large order that takes up all the space in your warehouse, avoiding logistics problems and high rental costs.
Transparency
Another valuable aspect of local suppliers is the opportunity for closer collaboration. When working with international suppliers, face-to-face meetings may be limited to once or twice a year. In contrast, you can easily visit local suppliers regularly to perform site inspections, engage in product development, and discuss your specific needs. Closer proximity facilitates the sourcing of specialized products, as you can stay in frequent communication (often in the same time zone) and clarify your requirements more effectively. Furthermore, local sourcing gives you a firsthand view of what you're investing in and who you’re partnering with, enhancing your ESG reporting efforts throughout your supply chain.
Lower Spoilage Risks
While eco-conscious consumers and domestic producers in developed nations are making a concerted effort to minimize food miles. At the same time, consumers have also become accustomed to having access to fresh produce year-round. This creates a need for a delicate balance between supporting local production and importing food. Local sourcing reduces transportation-related emissions. It also extends the shelf life of produce. Additionally, it encourages consumers to support local growers.
Lower Shipping Costs
Local sourcing generally reduces shipping costs because goods don't need transportation across long distances. Import taxes and export restrictions can impact transactions at both ends, adding to significant costs to deliver cheaper goods. When you're just starting out, it can be challenging to handle import taxes that eat into your profits.
Companies with a local supply chain spend more of their money on products rather than tariffs and know exactly how much each order will cost. They also don’t have to worry about fluctuating costs due to supply and demand or currency exchange rates, contributing to cost savings.
Disadvantages of Local Sourcing
Scarcity
Every country possesses unique resources. While businesses are encouraged to support their local economy by sourcing from nearby manufacturers, sometimes it’s just not feasible. Attempting to prioritize local sourcing when your country lacks the requisite skills to produce the specific products your business needs can put you at a disadvantage. Ultimately, you may need to seek out high-quality and dependable manufacturers, even if they're located abroad.
Higher Price Points
Global sourcing often provides access to more affordable raw materials and labor markets, resulting in substantial cost reductions. This approach can be particularly beneficial for businesses that prioritize cost efficiency, but only if the savings are greater than shipping and import costs.
Dependence
Relying too heavily on a single supplier can harm both the supplier and the business. When one company provides the majority of its profits, the supplier may lose competitiveness in the market and encounter difficulties in securing new contracts. Additionally, they may become too specialized to expand their business, slowing new product development. This situation could ultimately leave them behind and jeopardize their main source of income if their primary client considers diversifying into new products. Furthermore, maintaining close ties with local suppliers may raise ethical concerns during the supplier selection.
Backlash
Supporting local suppliers and contributing to the local economy can greatly enhance your public relations. But suppose you ever find it necessary to end these contracts. In that case, you might encounter significant backlash and negative sentiment, regardless of the justifiability of your decision. Ending a contract with a local supplier, especially one overly reliant on you for income, could result in unfavorable local publicity. The public may perceive that you are abandoning the same businesses and economies you were once celebrated for supporting.
Reduced Innovation
Local suppliers may be accessible and reliable, but they may not always have the expertise to deliver highly specialized or cutting-edge products. Small-batch producers or legacy industries may be hesitant to change their ways, especially if you need something unconventional. In industries where innovation is paramount, it may be necessary to explore international options to access the latest advancements and unique offerings.
Scalability
Local suppliers may not be equipped to meet the demands of a rapidly growing business, which can be a constraint on scalability. Leveraging the production capabilities of larger, global suppliers can lead to economies of scale, lowering the per-unit cost of production. That said, partnering with local small-batch suppliers might allow them to expand their business operations, giving you the best of both worlds.
Lower Objectivity
Over time, you might naturally form strong relationships with local suppliers, especially if they've been with you since your company's inception. Forming such relationships is a common and positive occurrence. However, as your company grows faster than they do, you may eventually require new partners to meet increasing demand. During such a transition, it can be challenging to make objective supplier selections, partly because of your established friendships.
Limited Options
In the global business landscape, there's always the possibility of discovering superior product versions. Local manufacturers may not offer the same variety of products or services as global suppliers. Global sourcing offers access to a wider variety of products, which can be crucial for businesses seeking unique or specialized inputs.
Lowered Risk Diversification
Depending heavily on local suppliers makes your supply chain vulnerable to regional problems like natural disasters, recessions, poor economic conditions, or political instability. A diversified supply chain spread across different regions can help mitigate risks associated with local factors that can disrupt your business.
Which Is Better, Local Sourcing or Global Sourcing?
Choosing between local and global suppliers involves careful cost-benefit analysis. Regarding the option that will save money, initial calculations can be deceiving. Shipping costs in local sourcing may be lower. Still, the cost of raw materials or labor can be higher, which could impact the overall cost competitiveness of products. On the other hand, especially in areas where corporate conduct faces high scrutiny, the benefits of local sourcing may outweigh the initial higher pricing.
While the choice between local and global sourcing often depends on the specific needs and goals of a business, many companies opt for a combination of both. Using local sourcing for certain components or services offsets global sourcing when necessary, balancing cost efficiency, variety, and risk mitigation.
Get Started With Local Sourcing
Sourcing local products can result in numerous advantages for your business, including cost savings, positive impacts on your community, and contributions to a healthier planet. As consumer expectations continue to rise, there is a growing need for businesses to enhance their transparency regarding ethical supply chains and corporate social responsibility.
At Keter Environmental Services, we can help you balance the scales between sustainability and profitability. Contact us today to schedule a 30-minute demo call with a sustainability expert.
