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Local sourcing; Just a trend – or a real trend reversal?

In recent years, we have observed an increasing tendency to return to local value creation. Increasingly more companies are opting for “glocalisation”, near sourcing and local sourcing, instead of going on a global sourcing tour. There are many reasons for this, for example, continuously rising transport costs, the uncertainties caused by Brexit, trade conflicts between the USA and China, the pandemic and, of course, the war in Ukraine. The demand for sustainable products and the possibilities of digital transformation also play a role.

Future supply chain logistics will undoubtedly differ from today's offerings. Supply chains are moving ever closer to the end consumer, while at the same time fewer products are traded over long distances. While it is still entirely unclear how far-reaching nearshoring will be, one thing is certain: increased uncertainties and changing trade policies are factors that are already impacting supply chain decisions today. Companies around the world are moving to source needed components and materials in close proximity to end markets.

The great hope of decision-makers: shorter, more reliable, less risky and more sustainable supply chains. In this blog article, we will look more closely at why many experts expect the end of global sourcing and what impact this has on procurement.

What exactly does "Nearshoring" mean?

Nearshoring is the term used to describe the relocation of production or service processes to countries that are geographically close to the country where a company is headquartered. It is therefore a form of outsourcing in which the distance between the company and the external service provider is smaller than in the case of offshoring, where the processes are relocated to distant countries. Nearshoring enables companies to achieve cost savings without compromising on the advantages of a local presence. These include, for example, shorter delivery times, better communication and the ability to react more quickly to market changes.

Why are increasingly more CPOs considering changing their global procurement strategy?

Increasingly more Chief Procurement Officers (CPOs), regardless of industry, are considering a change in their global procurement strategy due to a variety of factors.

The most important reasons for a change in strategy include:

Rising transport costs: Increasing transport costs due to rising oil prices and increased environmental regulations are making global supply chains increasingly more expensive.

Trade conflicts and wars: The smouldering trade conflict between the USA and China and, of course, the war in Ukraine have drastically increased uncertainties in global supply chains.

Sustainability: The increasing consumer demand for sustainable, regionally produced products requires companies to bring their supply chains closer to the sales markets. This is the only way to meet the required sustainability and environmental standards.

• Cost savings: Nearshoring and local sourcing enable companies to achieve sometimes significant cost savings.

• Risk minimisation: Diversification of suppliers and supply chains can help to minimise the risk of supply bottlenecks and dependencies on individual suppliers.

Are local sourcing and nearshoring the solution to the disruptions in global supply

Local sourcing and nearshoring can help avoid – or at least comprehensively minimise – disruptions in global supply chains. The approaches enable companies to reduce their dependence on individual suppliers and avoid supply bottlenecks through geographical diversification.

Nearshoring also offers companies the major advantage of achieving cost savings without compromising on the benefits of a local presence. However, it is also clear that local sourcing and nearshoring are not magic bullets that work all by themselves. Instead, the strategies also bring their own unique challenges – for example, the sometimes challenging, time-consuming search for high-quality suppliers nearby or the adaptation ofexisting processes to local legislation and environmental standards.
A comprehensive solution to the disruption of global supply chains must therefore always include a combination of different strategies such as risk management, supplier diversification, nearshoring and local sourcing, and the use of digital technologies to make supply chains more transparent, efficient and flexible.

What are the advantages of local and near sourcing?

Local and near sourcing have a number of advantages over global sourcing. Among the most interesting advantages are undoubtedly:

Shorter delivery times: Local and near sourcing allow companies to deliver their products and services faster, because there is less distance between the company and the supplier.

Proximity to the sales market: Companies can produce closer to their sales markets, which increases the possibilities for customising and the reaction time to market changes.

• Cost savings: The transport costs are usually lower; exchange rate fluctuations do not have to be included in the calculation.

• Sustainability: Local and near sourcing brings supply chains closer to the sales markets. This makes it easier to meet sustainability and environmental standards.

Risk minimisation: Diversifying suppliers and supply chains can help minimise the risk of supply bottlenecks and dependencies on individual suppliers.

What are the disadvantages of local and near sourcing?

Where there is light, there is always shadow. This also applies to regional supply chains, which unfortunately also entail some disadvantages for sourcing. For example, focusing on regional delivery partners can lead to a significant reduction in the number of potential suppliers. The available suppliers have less competition to consider – and experience shows that they will raise their prices significantly, especially when demand increases. Local environmental, labour and social standards can also be challenging, especially if they are significantly higher than those previously in place.

How can CPOs implement the 7-step strategy in their procurement activities?

To successfully implement local and near sourcing in procurement activities, we recommend the following 7 steps as a preliminary guideline:

1. Identify the products or services that are most relevant to your business and that can be most reliably delivered by local or nearby suppliers.

2. Use different tools and methods to find local or nearby suppliers, such as online marketplaces, industry associations and networks. Be sure to also rely on

data analysis and mining to identify nearby suppliers.

3. Check the quality, capacity and reliability of local or nearby suppliers before making a decision.

4. Once you have found suitable suppliers, draw up contracts to secure the relationship and clarify expectations and requirements.

5. Monitor suppliers` performance regularly to ensure that it meets agreed requirements and that the quality of the products or services delivered is maintained.

6. Promote partnerships with suppliers and work closely with them to optimise supply chains and improve business relationships.

7. Use digital technologies to improve supply chain transparency and traceability and facilitate collaboration with suppliers.

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