Multilocal and local sourcing – How to reduce vulnerabilities in metal industry supply chains

Before the crisis is after the crisis: after the Covid pandemic, the war in Ukraine and new lockdowns in Shanghai are sending new shockwaves through the global supply chain. How can companies better position themselves for materials sourcing?

According to a report by Tim Uy, economist at Moody’s Analytics, the biggest risk to global supply chains has shifted from the pandemic to the military conflict between Russia and Ukraine and related geopolitical and economic uncertainties. Factor in the increasingly devastating events related to climate change and the U.S.-China trade war, and it is clear that the already vulnerable global supply chain will be under pressure for some time to come.

How supply chain disruptions affect materials procurement in the metalworking industry

Steel

British Steel has reported that the price of steel in the UK has risen to £250 per tonne and is expected to rise further if the conflict in Ukraine continues and demand increases. The conflict could also impact the U.S. steel industry, which relies on pig iron and steel slabs from Russia and Ukraine, which are then used to produce crude steel in electric arc furnaces (EAFs) and flat rolled products in rolling mills.

Nickel

Nickel trading on the London Metal Exchange was suspended in the early morning of March 8, when the market was trading above $100,000 per ton, amid fears of sanctions on nickel from Russia, which supplies about 11.3% of the world market for the alloy and battery material. Even before the suspension of trade, the rise in nickel prices would have had a huge impact on alloy surcharges, which stainless steel mills use to pass on raw material costs to their customers. Companies operating in the battery sector will also be watching the volatility in the market for this important material with unease. 

Copper

About 10% of the world’s copper reserves are controlled by Russia. Largely considered a key economic indicator, copper is used extensively in electronics manufacturing and residential construction. Copper prices have also risen sharply recently.

Titanium 

The aerospace industry in the U.S., Europe and the U.K. relies heavily on titanium supplies from Russia. Although Boeing and Airbus have already turned to alternative suppliers, the market share and product base of VSMPO-AVISMA, the main Russian supplier, makes it almost impossible to turn away from it completely. Some aircraft manufacturers have signed supply contracts through 2028.

Aluminum

Russian aluminum producer Rusal has been forced to close the Ukrainian alumina refineries that normally supply its Russian aluminum smelters. The limited supply of aluminum has already caused problems in the construction industry and for beverage producers, who have had difficulty sourcing aluminum cans.

Further disruptions and potential shortages are expected for all of these materials, which could lead to price increases for many products and services.

Multilocal procurement/ Multilocal sourcing

Multilocal sourcing – characterized by preference for local communities, industries, products, cultures, and customs – means that demand is split among multiple suppliers so that they are ready and able to deliver immediately. Back in 2012, Stan Aronov, VP Distinguished Advisor at Gartner Supply Chain, predicted “a shift toward multi-local operations.” Manufacturers and retailers have long sought ways to balance global economies of scale with demands for local responsiveness when designing their supply networks. Leading companies are reevaluating their sourcing and production networks and realigning their supply network strategies in favor of multilocal design, delivery and support.” 

Local sourcing

Sourcing locally can circumvent almost all of the risks that currently exist while supporting the local economy. Local sourcing also allows companies to quickly adapt to changing consumer demands.

    • More flexibility
      Local suppliers tend to be more responsive than suppliers further afield. They can deliver products faster, and it’s much easier for a supplier to coordinate a shipment in neighboring regions than across the globe. 
    • Better control
      The farther you are from each stop in your supply chain, the less control you have over them. In-person visits make it possible to ensure that all products meet your standards. Plus, things are less likely to get “lost in translation.”
    • Lower supply chain costs
      The amount companies spend on logistics each year is staggering. Not only the cost of shipping to customers and suppliers, but also temporary storage can add up. Many of these costs can be reduced by localizing your supply chain. And with less money going to logistics, your bottom line is less impacted as well.
    • Trusting relationships
      Lack of supply chain visibility is a major issue for procurement professionals managing far-flung global supply chains. By sourcing locally, professionals can meet their suppliers face-to-face, build more meaningful relationships, better resolve conflicts, communicate more clearly, and exercise greater control. There are better opportunities for negotiation, collaboration, and innovation, and as a result suppliers will be more loyal and provide a higher quality of service.
    • Local procurement is more cost-efficient
      In the past, companies chose to move their manufacturing processes overseas and source products and components from overseas to save costs. But the price difference between overseas and local sourcing, once so great, is gradually narrowing as labor costs in developing countries rise and the costs associated with logistics and shipping are enormous. 
    • Local sourcing is more sustainable
      Localizing your supply chain is a tremendous opportunity to help the environment. When you reduce shipping and storage, you also reduce emissions and energy consumption. Not only does local sourcing help green production, it also helps you build consumer trust. When consumers buy with confidence, the company benefits from positive brand awareness and customer loyalty.
    • Faster communication for launches
      Manufacturers who buy locally benefit from working with companies in the same time zone, resulting in easier and faster communication. They can resolve issues faster and get products to market to meet consumer demand and bridge peak periods.

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