The Pros and Cons of Local Sourcing
Kelly Barner, Editor, Buyers Meeting Point
- Convenience: There is no question that having a supplier down the road - as opposed to across the country - opens the door to new kinds of information exchange and collaboration. Meetings can be casual and frequent, and have the opportunity to foster the type of interactions that breed creativity and innovation.
- Public relations boost: If your company’s product or service can be consumed by local companies, hiring another firm in the community to join the supply chain will no doubt provide a positive boost to your local reputation. Employees and their family/friends will no doubt return the favor with loyalty of their own.
- Response time/turnaround: The speed of business is showing no signs of slowing down any time soon. When a supplier is down the street rather than across the country, deliveries can be made faster and problems can be resolved in short order. In addition, there are no time zone differences to be navigated and travel fees are reduced to a minimum.
Cons of Local Sourcing
- Breaking up is hard to do: Nothing is forever – not even contracts entered into with the best of intentions. What if your company makes the decision not to renew a contract with a locally based company? Depending on the relative size of both companies, and how much business is at stake for each party, the negative PR associated with ending the relationship could easily outweigh any positive gains from the original award.
- What’s the ROI? Many companies invest in local sourcing programs primarily for the sake of supporting the community, but they have the secondary benefit of supporting small to medium sized or diversity businesses. These companies are rarely the most cost effective option, even when the introduce innovative new ideas. Companies looking to be able to document the ROI associated with local sourcing must be prepared to balance quantitative incremental costs with far more subjective benefits.
- Dependency: Again, assuming the buy side company is larger than the local supplier, there could be downside for them as well. The contract could create conflict by making it awkward for the local supplier to do business with competitors – something that we all know happens, we’re just not usually brought face to face with it. The imbalance may also cause the supplier to prioritize the feedback and ‘wants’ of their large local customer disproportionately, hurting their overall appeal to the market.