Secure your business procurement through a local supply chain: A winning strategy!

As global supply chains become increasingly long, complex and uncertain, securing procurement is becoming a major issue for companies. This is especially true for certain sectors which are particularly impacted by recent geopolitical tensions. These companies therefore have every interest in refocusing their strategy around local supply chain, across all procurement categories.

A tense and uncertain context

After the health crisis, the ongoing armed conflict between Russia and Ukraine continues to weaken global supply chains. These countries play a key role in the global energy, industrial and agri-food sectors, not to mention their territories were until recently crossed by major logistics flows. This has heightened tensions on prices as well as on the availability of certain strategic raw materials (gas, aluminium, copper, nickel, wheat, etc.) that both countries produce.

For companies, this uncertain conflict situation has translated into an absolute need to gain visibility over their supply chain. They have had to assess the risks based on the geographic location of their suppliers, of their flows and of their customers, in order to make the necessary adjustments.

This has led some players to favour a local supply chain, i.e. from suppliers located in the same national territory or in neighbouring countries. It is a winning strategy that guarantees the security, reliability and quality of equipment by investing in safer supply chains. This makes it possible to avoid geopolitical uncertainties and complex logistical constraints in order to strengthen supply chain resilience.

In its latest supply chain risk barometer, management consulting firm Kyu Partners highlights that a large majority of global companies want to increase dual sourcing for critical components. In the defence, aerospace and automotive sectors, this represents as much as 73% of respondents. In addition, 54% of companies express their intention to develop local sources, focusing on geographical regions close to their production and operation sites.

Local supply chain as part of the answer

It is in this context that companies have started to review their strategy to procure locally at all levels. This approach mainly aims to mitigate risks, more specifically those related to global supply chain disruption and rising costs.

Strengthening the supply chain

Geopolitical tensions, raw material shortages, procurement difficulties, labour shortages… There are many supply chain disruptions, causing significant damage to companies. It can lead to costly production delays or compromise the delivery of finished products. Ultimately, this impacts their financial health (turnover, cash flow), customer base and reputation. By opting for local suppliers, companies shorten and secure their supply chain, which reduces some of these risks.

Coping with inflation

Inflation affects raw materials, but also the shipping of goods. In this respect, the historic rise in international freight transport costs continues, especially by sea. Since late 2020, the cost of shipping a container has been multiplied by five, and up to ten, depending on the route. For many companies, cost savings can be achieved through cutting freight costs. By choosing local supply chains, they can reduce and even eliminate some of these costs.

Other benefits of a local supply chain

However, a strategy focused on a local supply chain also has many other advantages, from better supplier control to developing the entire ecosystem.

Strengthening control

By choosing suppliers geographically close to their production sites, companies also benefit from increased control. This allows partners to meet in person and communicate more easily about processes, as well as product and service quality, thus strengthening the business relationship.

Stimulating innovation

A local supply chain encourages long-term innovation and competitiveness. Companies can work closely with their local suppliers to develop new technologies, improve existing products, and strengthen their competitive position in the market.

Gaining competitiveness

Thanks to a network of local suppliers, companies improve their lead time. In other words, they can replenish faster than their competitors. This enables them to reduce their own execution times and thus to deliver to their own customers faster. This gives them a definite competitive advantage.

Better meeting needs

A local supply chain also provides companies with greater operational flexibility. Equipment needs can change quickly in response to shifts in the geopolitical landscape or customer demands. In such cases, local suppliers are more able to respond to specific urgent needs as they can react and deliver faster.

Supporting the local ecosystem

By relocating their procurement, companies also help strengthen their ecosystem and stimulate sectors. This boosts the local economy, creates jobs and value, increases wages, etc. It helps the entire community, companies and residents to develop.

Reducing the impact on the environment

Because a local supply chain reduces the distances travelled by goods, it also has a positive impact on the environment. Companies automatically reduce the greenhouse gas emissions associated with transporting their goods (scope 3). It is an effective way to reduce their carbon footprint and fuel consumption.

(Inset) Freight transport (trucks, planes, ships and trains) accounts for 8% of global greenhouse gas emissions and up to 11% when including warehouses and ports[1].

A local supply chain is therefore proving to be a winning strategy for companies suffering from the current crises. It is an effective and sustainable solution to mitigate supply chain and cost increase risks, while strengthening market position.

[1] International Energy Agency, CO2 Emissions from Fuel Combustion, 2018