Is it time for supply chains to go local? This is a question that is being asked across all industries that make use of a supply chain. With increased globalization, supply chains have been put at risk due to small interruptions that may have large repercussions. The cheap mass production supply chains of the past are not prepared to deal with the unpredictable business environment of the future. Supply chains need to become smarter in order to deal with the side effects that may arise from this.
Many believe that the solution to these problems is going local. Having a supply chain that can rely on assets located in its direct vicinity is the answer to avoiding the problems that come from globalization. This will allow supply chains to become more efficient and will become more sustainable with shorter shipping routes and a smaller carbon footprint. Local supply chains will also help to stabilize and support the local economies where they are located instead of outsourcing the work that could be done in their area. This article gives insight into how local supply chains in the UK could have a great impact on the economy of the country and how other countries should model their shift to local supply chains.
Is it time for supply chains to go local?
Business secretary Vince Cable attacked energy giants last Wednesday for not using enough home-grown and local suppliers, which could signal an end to long-haul transportation in supply chains.
Dr Cable noted that UK content for one offshore wind operator he had spoken to wasaround 20 percent. “The company assured me they couldn’t find firms in the UK with the relevant expertise,” he said, “but admittedly they hadn’t tried.” He announced in April that the government would offer a £100 million fund to boost business’ supply chains and support re-shoring back to Britain.
Long supply chains and the acquisition of materials from around the world have been cheaper for businesses for years. This is why supply chain managers are reluctant to give up cheap labour from China and India, even if it means delays in production. The growth of emerging markets and increases in labour costs fuels uncertainty for the future of these supply chains.
This risk, which reached its highest ever level last year, must be adequately managed, and this is reflected in the amount of concern, time and money that is being put into risk management in supply chains around the world. Risk management emerged as supply chain executives’ second largest challenge in IBM’s Global Chief Supply Chain Officer Study of over 400 supply chain executives in 2010. The common supply chains of cheap mass production are not equipped to survive in our digital and unpredictable business environment of the 21st Century.
Tim Carroll, integrated supply chain Vice President for IBM said: “A crisis in some far-flung country can now spread very quickly across the world economy, creating tremendous turbulence. To deal effectively with risk, we believe supply chains must become a lot smarter.”
Political uncertainty in Ukraine and Russia has affected supply chains around the world. According to JP Morgan Commodities Research analysts, even though Ukraine is not a major oil producer, it is often the middle man country for Russian energy exports. More than 70 percent of its oil and gas flows through there to reach Europe. A range of commodities, parts, components and finished products have been affected, including Boeing’s titanium supply.
The horsemeat scandal in 2013 was an example of how long supply chains, and a lack of regulation of those, saw executives disengaged with their suppliers, according to reports from The Telegraph.
Some say these risks mean businesses need to go local. A trend towards social and corporate responsibility in business has prodded managers to consider investing in local economies to take advantage of talent and business in their own area. It can also help with reducing their carbon footprint, and saving transport costs outsourcing to countries around the world.
Mark Parsons, Senior Vice President Development and Strategy UK at DHL said: ”By sourcing materials closer to the point of manufacturing, businesses can reduce the number of potential risks – such as delays due to natural disasters, and ensure quality control is maintained by making regular check-ups.”
Christopher Nieper, managing director of David Nieper luxury womenswear, employs over 230 people in Derbyshire. He said: “Sourcing as much as possible locally makes good business sense.
“Sustainability, fast and flexible production, attention to detail and quality control – all of which are better managed locally. It creates jobs, adds value to the economy and means that you can build up a really strong skills base.”
Bosses at the Norfolk Chamber of Commerce said that they have seen an increased appetite for large businesses wanting to do deals locally. Their Meet the Buyer event saw over 500 appointments for over 250 suppliers registered in the first 24 hours. Many of these are companies embarking on new projects, and wanting to build local supply chains from scratch if possible.
Bradley Davis, Group purchasing director at Kinnerton in Fakenham, told the Eastern Daily Press: “It can be advantageous when looking at lead times, storage costs and transport costs. We believe that [when] providing the service and quality meet our expectations then we can work with local companies.”
Kate Hills, founder of Make it British, has seen an 850 percent increase in demand from clothing retailers and fashion brands looking to source locally – and has organised a Meet the Manufacturer event to bring brands and manufacturers together.
“I think that local production is appealing to businesses partly because of rising costs of producing overseas. If you factor in shorter lead-times, allowing buyers to decide on ranges closer to the season, you can see why many fashion brands and retailers are interested in working with UK factories.”
“When your cash is not tied up in stock sitting on a boat coming over from the Far East, it makes for a far more appealing business model.”
Mary Portas, retail marketing consultant and broadcaster, and keynote speaker at the event next month said: “Making this in this country creates jobs and skills of course, but it’s also good for brand reputations, customer relationships and the environment.”
Richard Yendall, founder and CEO of cashback website imutual, has developed filters for customers to find deals with businesses in the local area based on their postcode: “We access thousands of deals by integrating their product feed into our system. In the longer term, we’d like to build direct relationships with local retailers, cutting out the middle man, and costs.”
Shaun McCarthy, director at Action Sustainability has long been an advocate of local procurement, but warns that they must be competitive to attract businesses. He toldSupply Management: “If you draw from a relatively small pool of suppliers, there is a danger that non-local suppliers will be disillusioned and refused to bid. It can also have a negative impact in that these businesses become less competitive if they believe they are in a strong position.”
Business Reporter recently reported on how 3D printing could change the supply chain, and many experts noted that supply chains could be dramatically shortened should businesses choose to use 3D printing companies for parts, or even install them in-house.
Britain is the world’s second largest aerospace sector, with around 3,000 companies serving the industry supply chain, creating 41,000 jobs with an annual turnover of £5.5 billion. Many companies use local supply chains, which in turn cuts transport costs, improves communication, and supports the British economy.
Other examples include the fracking industry, which The Telegraph recently reportedcould create tens of billions of pounds worth of opportunities in the supply chain if firms equip themselves correctly. A few weeks ago local businesses in Yorkshire met with officials from HS2 to challenge other suppliers in Europe and persuade them to go local for the £42.6 billion project and help boost local economies.
On the other hand, it cannot be denied that businesses exist in a 24/7, truly globalised world in 2014. Supply chain managers are extremely aware of this, particularly with regard to exports, which will not be localised.
Craig Simon, FedEx, President and CEO Supply Chain said that we must consider the 24/7 world in which supply chains now operate. ““For most of history, the supply chain that links the world together today would have been unimaginable. The road to market is now a superhighway. It is a 24/7 operation. Global trade does not sleep. In fact, it never even pauses for a nap.”
There are opportunities for businesses to support local jobs, develop skills nearby and improve communication by switching to local supply chains. However, there will always be an impact on the supply chains they leave behind, which may become unsustainable without major links.
Selling products overseas will remain; it would be unthinkable to ignore global opportunities to export. It also will depend on the type of supply chain, and the fact that many sourced products are only available from overseas markets at a competitive price.
The bottom line depends on cost; if businesses can save money and be sustainable, then new links or expansion of projects may pave the way for more companies to ditch their lengthy, world-wide supply chains in favour of ones down the road.
