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Tuesday, June 21, 2016

The Pros and Cons of Local Sourcing


Guest Blogger
Kelly Barner, Editor, Buyers Meeting Point 
Think globally, act locally. – Paul McCartney
…except when to do so causes more harm than good. – Kelly Barner

As consumers of goods and services, we are constantly bombarded with feel good messages about the companies we buy from. Green production, sustainability, and local sourcing: it is easy to take for granted that these programs are in everyone’s best interests. After all, why wouldn’t we want the companies we patronize to keep the bigger picture in mind and take every opportunity to do a little bit of good in the process of making a profit?

Business to business operations have to take a different kind of approach to such initiatives as their immediate customers are usually more motivated by efficiency and innovation than socially-oriented programs. Procurement and purchasing professionals play a unique role in B2B local sourcing; we have to outline the pros and cons and help the rest of the company decide when these programs are advantageous for all parties involved and when the fit just isn’t right.

Pros of Local Sourcing

  • 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.

Clearly, any local sourcing program must be approached with careful forethought rather than altruistic assumptions. This is an opportunity for procurement to play a key role – not only as the point of communication between their company and the local supplier, but between the groups in the company that have differing perspectives on the program as a whole.

Buyers Meeting Point is a supporting partner of Sourcing Solutions™. Sourcing Solutions brings together buyers and suppliers of fabricated metal parts, metal stampings, tooling & dies, assemblies and more to make valuable connections, face-to-face. The 2016 program will take place on September 29 in Indianapolis, Indiana. To learn more, visit www.pma.org/sourcingsolutions

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