5 Advantages to Localizing Your Supply Chain
Don't wait for the next supply shortage to start building relationships with local sellers.
Businesses of all types and sizes regularly look for ways to optimize their supply chain. Whether it's decreasing the number of suppliers (often international), increasing order sizes, or consolidating shipments - there are myriad ways for companies to cut marginal costs in operations and procurement. This pursuit of profitability has left many organizations open to major risks. The effects of COVID-19 led to port closures, capacity shortages, and inabilities to fill critical open roles in almost every sector. This has led to the supply scarcity and inflation that we're currently facing and provided a shock of reality for many leaders: traditional supply chains aren't as strong as we think.
The supply chain wake-up call
The world may be opening back up, but many businesses, especially small businesses, are still grappling with ongoing supply shortages and are looking to identify alternative suppliers. Leaders are reassessing cost-down strategies in favor of striking a balance between savings and reliability. In their search for stability, some leaders are searching closer to home for local suppliers who may have been previously passed over.
According to a recent McKinsey survey, 90% of supply-chain executives stated that they expect to pursue some degree of regionalization during the next three years. The University of Wyoming is implementing a new system to accomplish just that. They've recently created an online database to connect local suppliers with each other to strengthen the local manufacturing supply chain. While this is just one example, it underscores the benefits of local suppliers partnering with each other.
Benefits to purchasing from local suppliers
Some leaders worry that working with smaller suppliers might cost more due to their lack of scaled buying power, however any potential price increases can be offset by a variety of benefits. Partnering with small, diverse, and local businesses offers five advantages to leaders looking to build supply chain resiliency
- Relationships: Need to decrease production or change the number of shipments? Need to see how products are produced? Local businesses provide an opportunity to foster relationships that allow for visibility, flexibility, and quality assurance.
- Distance: Sourcing products locally means that products have a shorter distance to travel. This shorter distance translates to reduced reliance on (and vulnerability to) global shipping methods and a reduction in supply-chain complexity and cost.
- Waste: Sixty-three percent (63%) of business buyers say that improving sustainability in their purchasing practices is a top goal. By reducing the distance products travel, we are reducing the consumption of fuel (fossil or otherwise), waste and other environmental, social, and governance (ESG) costs such as pollution.
- Local economy growth: Local sourcing and purchasing means that dollars spent return to your community. This means that by building supply chain resiliency, you are also building goodwill and wealth in your community.
- Supporting diverse businesses: By purchasing locally from small businesses, organizations are often contributing to diverse businesses. According to the U.S. Small Business Administration (SBA), as of 2022, there are 33.2 million small businesses in the U.S. which represent 99.9% of all businesses. Of those 33.2 million small businesses:
- 43.2% are women-owned
- 19.4% are minority-owned
- 6.4% are veteran-owned
How you can help your local partners
We have seen some of the benefits organizations can derive through purchasing from diverse, local businesses. There are various ways that you can help your local small and diverse businesses thrive through:
- Encouraging certifications: Certification allows purchasers to quickly identify businesses as local or diverse. This can be especially beneficial for suppliers in the government and education industries where there are spend mandates for various types of suppliers.
- Knowledge sharing: Building relationships with local businesses and sharing knowledge gives these owners the potential to improve their operations and business practices. The enhancements benefit both you and your supplier.
- Ecommerce platforms: Businesses looking to build supply chain resiliency are turning to ecommerce platforms that increase their pool of suppliers and build competitiveness. If you are working with small local businesses, encouraging them to become active on ecommerce platforms will increase their visibility to other organizations, especially if they are looking to compete for government contracts or looking to grow their sales in neighboring communities.
Next time you start thinking about ways to build a stronger supply chain, remember that part of the answer might be right down the street. Building relationships with these sellers now can help safeguard against future supply chain disruption while supporting small and diverse businesses within your community.
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