How to Grow your Business by Going Local

Manufacturing offshore is becoming a trend of the past – read about the benefits of local sourcing for your sustainable procurement strategy.

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For decades, global companies have been rushing to offshore their manufacturing, taking advantage of the lower production and wage costs. At some point in time, offshore manufacturing simply became the norm, and procurement professionals, by and large, didn’t question that. But now? 

Things are changing, and fast. 

Throughout the pandemic, we’ve had serious cause to question whether China can continue to be trusted as the world’s factory, or whether Mexico might soon overtake it. Now, though, we need to start asking an entirely different question, and that is: is it sustainable, achievable and even desirable to continue manufacturing offshore? 

That question, along with many other critical questions in the quasi-post pandemic world, was one that we explored in our latest eye-opening webinar, Let’s Get Visible: Diverse, Local and Sustainable Procurement. In particular, our panel of experts speculated on how the current climate inspired many large companies to make the move to local suppliers. Lindsay Munn, Senior Solutions Consultant at Basware, noted that mitigating risk is on the top of everyone’s minds:

“One aspect of that [mitigating risk] is availability,” she said. “Do you have coverage for key items that you need from multiple suppliers worldwide? If there is an event [or disturbance] in one region – do you have a supplier in a different region that can take on those orders so you can ensure business continuity?”

The need for agile sourcing strategies is paramount, and this is where local procurement comes into play.

Local procurement has many benefits, and while you’ll have to listen to the webinar to learn exactly why there’s never been a better time to match the switch, here are four benefits you seriously need to consider: 

1. Decreased supply chain costs 

For most of us, the reason we went offshore in the first place was to save on costs. However, the cost savings of offshore manufacturing are quickly evaporating, and here’s why: 

• First and foremost, the costs of international shipping have risen astronomically in the last 18 months. What’s more, they show no sign of abating anytime soon, with many experts predicting they will continue to increase for at least a year (if not longer). Freight costs have, in some parts of the world, nearly doubled, with an increase of 15% at least felt across the board. With these additions, offshore manufacturing is certainly not as cost-effective as it was before. 

• In addition to increasing freight prices, the cost of manufacturing overseas – especially in China – is also increasing at disproportionately high rates, with a year-on-year increase of 9%. Factoring in those increases (which amount to nearly 25%!), local manufacturing may well deliver decreased supply chain costs. 

2. Increased sustainability 

Global sourcing is complex, and so too is understanding the sustainability profile of your overseas suppliers. Sometimes, despite your best efforts, there can be questionable suppliers hiding further down your supply chain that may be hiding all manner of environmental sins.

Local sourcing can ensure better monitoring of suppliers, but it can also significantly reduce your carbon footprint. Whenever you import anything, you add a significant number of ‘miles’ to that product’s production, which in turn results in significant carbon emissions. These ‘miles’ are by no means small – research has shown that the food that fills just one grocery basket in the USA has typically travelled over 70,000 kilometres. 

Local sourcing can reduce product miles by up to 90%, ensuring that the end result is much more sustainable. 

3. Reduced time-to-market

When calculating the costs of goods, we – as procurement professionals – often only take into account the costs of the inputs. This, however, simplifies the savings we can help the business make. One huge benefit, that is often hard to quantify, is the savings that can be generated from producing (or scaling up) production and getting a product to market much quicker. 

In the world of manufacturing, local sourcing can create so many advantages when it comes to reduced ‘time-to-market’. 

• Firstly, there’s the advantage of being able to meet your suppliers and potentially oversee the production process. But even if you can’t always visit in person, having suppliers in the same time zone can help make your communication smoother and easier. 

• Beyond this, the ease and certainty with which you can procure goods (without the stress of waiting on international shipments), can save literally months, and get products out to customers much quicker.

4. Better transparency 

Regardless of what contracts you put in place or what checks you try to do, we can all admit that it is often difficult to guarantee transparency with offshore suppliers. Trust is paramount, but it is often broken: research shows that modern slavery is often hiding just out of plain sight in our supply chains, especially since the pandemic, where exploitation has increased by 42%.

Local sourcing can help alleviate many of these concerns, while also ensuring you incorporate essential elements into your supply chain, for example, diversity. When putting out an RFP for local suppliers, it’s much easier to collect information on whether that supplier is minority or female owned, for example, and how they are also working with other diverse suppliers. 

With benefits like these, is it sustainable, achievable or even desirable to continue to manufacture offshore? 

For an in-depth analysis of this topic, tune in to the Let’s Get Visible: Diverse, Local and Sustainable Procurement webcast, which is available on demand for a limited time, starting next week.