Now is the time for manufacturers, retailers, technology providers, and other types of businesses to rethink their approach to supply chain sustainability. One potential solution to the disruption that we’ve seen happening on a global level is to make supply chains more local.
Here are 5 good reasons to consider localization as a strategy to mitigate the risk of global supply chains:
- Reduction in risk from macro factors. The events of 2020 were not the first time that extended supply chains have been disrupted or impacted by extenuating factors such as environmental disasters, trade tariffs, and regulatory change (not to mention modern slavery risks) hidden in the supply chain. As we emerge from this crisis, it is clear that the pattern of global supply chain disruption may become the norm, rather than the exception.
- Minimizing exchange rate volatility. Volatile exchange rates make international procurement decisions more difficult, due to the risk of losing money from ongoing changes in the exchange rate. For many businesses, the events of the last year will be the “straw that broke the camel’s back.” They will say enough is enough -- it is simply not worth buying goods from 10,000 miles away just to save 4-5% on price, especially given the exchange rate risk.
- Streamlining business complexity. In many ways, COVID-19 massively accelerated the need for a more streamlined approach to supply chain management. The appetite for digital transformation exploded, as the shift to remote work required organizations to fully adopt online digital models for procurement and other key business functions. People didn’t want to touch paper anymore, especially not knowing where it was coming from, and businesses had to figure out ways to move their processes forward with team members in various physical locations. In addition, as the pandemic impacted business plans and profitability, it the need to save money even more acute.
- Improving vendor diversity and inclusion. Corporations are currently motivated to improve the levels of diversity and inclusion in their supply base. Working with local vendors enables organizations to give back to the communities that buy their products, helping minority and diverse suppliers to rebalance inequalities in their own backyards.
- Reducing environmental impact. The environmental consequences of sourcing goods from the other side of the world include toxic waste, water pollution, loss of biodiversity, deforestation, long-term damage to ecosystems, hazardous air emissions, greenhouse gas emissions and energy use. Localized sourcing, or “on-shoring” as some people call it, is more sustainable for the environment, as well as for business.
As we emerge from the pandemic, most businesses are trying to simplify their processes in order to become more agile and resilient. Few will want to return to the cost, product risk and inflexibility that comes along with maintaining their own inventory. Instead, organizations will look closer to home for their vendors, in order to minimize supply chain impacts and look for new technologies and innovative ways to save costs and become more efficient.
Chirag Shah is a proven corporate executive and successful serial entrepreneur specializing in the supply chain B2B arena. He has a unique combination of successful career progression within the corporate world, and has also founded and exited several entrepreneurial ventures. With several successful ventures including 3-times listed TechTrack100 venture TradingPartners, Inc5000 ventures MarketMaker4 and Purchasing Platform and most recently Simfoni, a leading vendor for Spend Intelligence and Spend Automation solutions, Shah has a demonstrable track record of scaling businesses internationally and across a variety of commercial models including eCommerce, SaaS, Managed Services amongst others. His expertise lies in leveraging innovation and technology to create a disruptive force in a target sector. Examples include introducing the concept online dynamic bidding (he holds a patent in this area), pioneering the concept of asset-sharing in the world of supercars, deploying machine learning in analytics and data processing and leveraging Artificial Intelligence in the procurement sector. He is mostly experienced in operating a variety of business models relating to technology and technology-related business such as Licensing, SaaS, eCommerce, On Demand, Managed Services and Outsourcing. Key strengths include: Strategy development, capital efficient business management, people management, channel partner development and corporate finance.