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Jonathan Gilpin

Lean

Why Sometimes You Need to Source Locally

Coming years will see an increased focus on social value, which may lead to a growth in local sourcing

Published: Thursday, March 31, 2022 - 11:02

The world of procurement is often tricky. It involves choosing one appropriate candidate, ultimately benefiting them while rejecting and disadvantaging others.

That said, it isn’t just the businesses picked that will profit from winning the contracts; it’s also their supply chain, their local economy, fellow businesses, families, and so on.

This is particularly true when we take into consideration just how lucrative and valuable some contracts can be. With this in mind, you can see why the role of the buyer in the procurement process can be so complex.

One aspect of sourcing that received considerable attention during the pandemic was that of locality. The idea of “shop local” was thrust into the limelight as businesses and consumers not only struggled to get deliveries from farther afield but also chose to support businesses closer to home in a community-spirit approach.

With responsible consumerism taking center stage in the modern world, shop local is gaining even more traction. However, that is not to suggest that global sourcing doesn’t provide equal opportunity and benefit. In this article we’re going to consider the differences between local and global sourcing before going on to detail some occasions on which local should be the preferred option.

Global sourcing

Global sourcing involves procuring goods and services from international markets that cross geographical and political borders. Although there are multiple reasons why businesses and organizations opt for global sourcing instead of procuring goods and services locally, the most common are lower-cost skilled labor and inexpensive raw materials being unavailable in businesses’ home country.

The vast majority of well-known multinational corporations we interact with use the capabilities of international outsourcing, calling upon low-cost, skilled labor.

According to dragonsourcing.com, “The workforce in countries like China, India, Taiwan, Vietnam, and Indonesia are aware of the latest trends in production techniques, and they also know how to implement these advanced manufacturing techniques in their operations, enabling them to manufacture products that conform to global quality standards.”

As well as bringing cost and production benefits to the purchasing organization, global sourcing also helps support the local economy of the production region by providing employment opportunities in what are often poor areas.

Local sourcing

Did you know that 72 percent of industrial and B2B buyers suggest that they “always or generally prefer to source locally” in contrast with the 10.8 percent that note they “always or generally prefer to source globally”?

Quite the opposite to global sourcing, local sourcing is simply the procurement of goods and services from local suppliers within your home country.

Similar to global sourcing, where buyers can create employment opportunities within their international markets, local sourcing creates jobs and wealth domestically. Likewise, bringing employment to the local area can also serve as a great tool for public relations, highlighting an organization’s commitment to its own local community, much like the shop-local ethos.

Local sourcing, however, can lead to considerably higher prices, due to material and labor costs generally being higher domestically.

When sourcing locally makes sense

There are a number of situations when sourcing locally is the most effective option. Some of them are detailed below:

To gain better control of your products

Closer relationships help ensure better control and enable faster problem-solving. When concerns arise, being geographically closer to suppliers allows for face-to-face visits. Similarly, if the buying organization encounters problems that will have knock-on effects for the supplier, the ability to meet face-to-face is obviously preferable when seeking a quick resolution.

Costs associated with coordination can be significantly reduced by better lines of communication.

When your local economy needs you

Spending on local businesses and industries, as we’ve previously noted, is of incredible value to the local economy.

Not only does this bring increased funding from taxation, but it also brings jobs and prosperity to the local area and region. More people working leads to more local spending, creating a virtuous circle.

This can be a particularly powerful tool, especially for public-sector organizations in areas that have been experiencing economic downturn.

When you’re trying to improve your organization’s carbon footprint

Reduced travel, reduced fuel, and less packaging all lead to a reduced impact on the environment. By sourcing locally, organizations can successfully help protect the environment and contribute to the goal of achieving net zero.

All the above became appropriate solutions to sourcing problems during Covid-19. The pandemic was a perfect example of a time when buyers needed to have better control of their products, when they needed to support local businesses, and, thanks to the UN’s COP26 conference, when they needed to demonstrate a commitment to reducing their carbon footprints.

Social value

The factors mentioned above all fall under the concept of social value, which sits at the heart of the UK government’s proposed procurement reforms. Social value, as described by Social Value International is “about understanding the relative importance of changes that people experience and using the insights we gain from this understanding to make better decisions.”

Similarly, e-procurement platform Delta eSourcing notes how social value “is not something which can be added on, rather central to an organization’s entire way of doing procurement.”

As of January 2021, the UK government’s “Social Value Model” was mandatory in all central government contracts. But what is the Social Value Model? In effect, it sets out all of the government’s social value priorities for procurement, detailing a list of objectives that central government departments are strongly encouraged to include in their procurement process. The objectives center around five main themes:
• Covid-19 recovery
• Tackling economic inequality
• Tackling climate change
• Providing equal opportunity
• Championing well-being

Ultimately, the model was designed to make it easier for buyers to assess and evaluate the social value detailed in tender responses and to incorporate it into procurement of all kinds.

While currently this is just a necessity for central government contracting, the model is being increasingly used within public-sector contracts as a whole in England.

We anticipate the coming years will see an increased focus on social value, which may, in turn, lead to a growth in local sourcing.

Discuss

About The Author

Jonathan Gilpin’s picture

Jonathan Gilpin

Jonathan Gilpin is a content executive for BiP Solutions. Having worked for six years in journalism and marketing, he currently specializes in procurement and employment.