Local vs global sourcing: The pros and consSheng
When it comes to finding a supplier or manufacturer, you can source from local companies or you can go global. Both methods have their own pros and cons, so to help you understand the main differences between the two, we’re going to explain why you might want to keep things local and when to take advantage of the global supply chain.
What is Local Sourcing?
Local sourcing refers to the sourcing of products or materials from manufacturers within your home country. Instead of reaching out to international supplies, you instead choose to buy from local manufacturers.
Shopping local can often come at a price. Choosing to invest in a manufacturer from your home country can involve higher prices than if you were to invest internationally. However, local sourcing can be easier too and faster. If you are in demand of a quick turnaround, it might make sense to source from a local supplier who can produce products and deliver within a certain timeframe, rather than have to take shipping times into account.
The Pros and Cons of Local Sourcing
Finding a local supplier could help your business save time and money. Here are some of the top reasons why you might consider local sourcing over international manufacturers.
Pros of local sourcing:
- Local sourcing can be great for PR, it allows you to demonstrate investment in your local community.
- It’s great for local suppliers who will benefit and take pride in serving their local community.
- Local sourcing allows you to see exactly what you’re paying for as you’re able to travel to suppliers for development, management, and site inspection purposes.
- It can become far easier to source specialized products from a local supplier as you can visit them on a regular basis to explain face to face your requirements.
- Shorter supply chains which could (if lucky), lead to greater predictability of delivery times.
There is an argument that more businesses should support their local economy by sourcing products and services from local manufacturers, however, the reality is, this isn’t always possible. Each country has its own resources and expertise and to advance in business, it’s important to source products from high-quality and reliable manufacturers, even if they are based overseas. Trying to source locally when your country is not as skilled in developing the products your business need can put you at a disadvantage and cause issues along the way.
Despite local sourcing being great for PR, here are some major reasons why international sourcing might be the way to go.
Cons of local sourcing:
- Close connections with local suppliers can lead to issues with ethical supplier selection.
- If you were to terminate a contract with a local supplier, undesirable local publicity could arise.
- You might not be able to find high-quality products within your home country.
- Economic implications in your home country could impact delivery and supply chains.
- You might occur possible resistance to change especially if you require something innovative and out there.
- Your chosen supplier may come to depend on you as their main source of income.
What is Global Sourcing?
Global sourcing refers to the practice of sourcing from the global supply chain for goods and services across geopolitical boundaries. This procurement strategy is something businesses all over the world use, as international sourcing can help save businesses money by finding cost-effective locations to manufacture goods.
The term Global sourcing can also be used when a business acquires raw materials or components from international suppliers and manufactures, rather than from the country where the business is based.
If you run a coffee shop in the US for example, you can take advantage of international sourcing and procurement by buying coffee from Guatemala and Colombia for a cheaper price than US supplies. This allows a business to generate a healthy profit.
Before you make a start on being a part of the global supply chain, and receiving or sending your products to and from consumers across the world; you need to know where your company stands in terms of its global network.
There are five different levels of global sourcing that a company can operate by:
- Level I identified by domestic purchases only
- Level II described by purchases internationally on an as-needed basis
- Level III represents a shift in sourcing strategy to include international purchasing
- Level IV involves central coordination of purchasing across global business locations
- Level V achieved through worldwide integration and coordination with other functional groups
When you figure out exactly where your company stands in relation to international sourcing, it will provide you with the opportunity to capitalize on improving its long-term performance within the global sourcing world.
The Pros and Cons of Global Sourcing
The main advantage of global sourcing is the cost-saving aspect. International sourcing sees many foreign manufacturers offer their services at a very competitive price, especially in regions where typically products are made at a low-cost. A more affordable manufacturing cost will allow businesses to buy goods in bulk at a lower price point, ideal for start-up companies and businesses on a limited budget.
When on the global supply chain, you’ll find that low-costs are only one of the many great benefits you receive when internationally sourcing your products. Let’s take a look at some of the additional benefits you could enjoy by sourcing your products from an overseas manufacturer.
Pros of global sourcing:
- Access to a wider assortment of products than you may be able to find domestically.
- Access to unique, hard-to-find products, which can attract more customers.
- Access to suppliers worldwide, which means you have many more options than you have domestically.
- Overseas suppliers are often more open to working with small businesses or producing small quantities.
- You can increase your total supply capacity by using multiple suppliers globally or in different regions, which can also protect you against supply chain problems caused by natural disasters.
- You can gain access to resources, materials or skills that you can’t find domestically, such as the ability to manufacture a specific type of product.
- Sourcing overseas is a learning experience that can provide a stepping stone to selling in new markets overseas.
- Overseas manufacturers generally offer substantial cost savings compared to sourcing domestically.
While the benefits are great, there are pros and cons to everything in life; and this also applies to global sourcing. Here are some of the common pitfalls that may occur while internationally sourcing.
Cons of global sourcing:
- You may experience different industrial or technical standards, which may or may not you’re your home country’s requirements.
- Restrictions are in place that may affect import or export at either end of transactions, such as quotas and tariffs.
- Documentation requirements for cross-border processes may be time-consuming and complicated.
- The currency exchange rate can fluctuate.