The media is full of stories about the failings and weaknesses of global supply chains. It seems we have suddenly discovered that China is far away (and not in fact a remote US state); that ’emerging’ markets do not share Western value systems; that business rules and practices are driven by culture and cannot simply be overridden or suppressed; and that historic economic muscle does not automatically translate to limitless power and control.
So now the body of experience is growing. The war stories are proliferating. And as costs rise, supply constraints kick in, quality failures become visible and threatening, [and] we find [ourselves in] an environment in which fundamental questions are being asked over supply strategies. Perhaps local sourcing makes sense. Maybe those old suppliers were not so bad after all.
So states Tim Cummins in the beginning of his blog post on how Buyer Misery Equals Supplier Opportunity where he essentially states that the current market should offer the perfect storm for local suppliers to make their case that, when everything is factored in, local suppliers are often the best choice for your business.
As Tim notes, in tough times, local suppliers can offer the following advantages:
- lead time reduction
You can get products next week, not next quarter. This reduces your costs and increases your profits in multiple ways:
- reduced transportation costs
It costs less to truck across a few states then to truck across a few provinces in China, ocean freight across the entire ocean, and then truck across multiple states through multiple regional distribution centers.
- reduced inventory costs
You only have to store a few weeks worth of inventory, not a few months. Considering 10% to 20% of total product cost at most companies is inventory cost, this is very significant.
- fewer lost sales from stock-outs
If your inventory depletes faster than you expect, you can often get more in days with expedited shipping (which is worth it if the product is a high profit margin).
- reduced transportation costs
- quality improvement
In addition to sharing the same values, a supplier in your local market is bound by the same laws, regulations, and liabilities that you are. Thus, the chances of them producing an inferior quality product are much lower. Note that this also reduces your costs as higher quality means fewer returns, and, most importantly, fewer lawsuits!
Again, a local supplier is bound by the same laws and regulations that you are. Thus, they will be compliant from the start. This also reduces your cost as compliance monitoring can get very costly.
Even though some foreign suppliers, desperate for business, may seem over eager to work with you, you have to remember that, in some cultures, you don’t say ‘no’ to the customer and that the supplier may not be as open to open collaboration as a local counterpart who speaks your native language natively as well. Plus, a supplier in a local market is more likely to be going through ups and downs at the same time you go through ups and downs and is, thus, more likely to be on the same wavelength.
So follow Tim’s advice and get out there and promote your services as a more reliable, ethical, environmentally-conscious, compliant, quality, innovative supplier who is ready and willing to work with your customers to find new and innovative ways to reduce costs and increase value across the board in a manner that will allow a consistent and predictable supply.
And for all of you suppliers who are saying “How do we do this?, my answer is to use the tools and services that are already available to you. Create a great web-site and have a search engine optimization firm optimize it for Google searches. Every day, more and more people turn to the web, and Google, to help them discover new sources of supply. Then, identify a marketplace (not a supply network that is limited to buyers who use a certain vendor’s software) where people are going to go to look for suppliers like you. If you’re in manufacturing, I recommend taking a good look at MFG.com. Yes, it is a pay-to-play marketplace (but then again, they’re all pay-to-play marketplaces), but at least they have an in-house team dedicated to helping manufacturers make the most of their opportunity, which includes assistance in getting set-up, finding new opportunities, and responding to RFPs. (This is because they make most of their revenue off of transactions, which don’t happen unless their manufacturers get business.)