Understanding local sourcing
Local sourcing relates to obtaining your inputs from local suppliers. Rather than obtaining materials, components, or ingredients from suppliers potentially located on the other side of the world, in local sourcing, companies prioritize local firms located near the company’s operations.
Some of the advantages of local sourcing include:
- Build trust and integration with local suppliers: Being local helps you get to know your suppliers
- Shorter delivery and lead times: No need to wait for products to be delivered from the other side of the world
- Allows for just-in-time manufacturing: Allows you to cut the inventory levels across your firm
- Avoids the complexity of dealing with overseas firms, or import taxes: Cuts down the difficulty of sourcing your inputs.
How local is local?
What it means to be local can vary depending on your industry and the typical distances inputs travel to companies.
In the restaurant industry, being local may have a very small geographic boundary – potentially referring to the surrounding town around the company. Customers may be willing to pay a premium for goods purchased from the surrounding area, the product may be fresher, and sourcing in a small radius may cut down on transportation costs.
In comparison, for a manufacturing firm, local sourcing may relate to buying products from companies within the same country. Manufacturers who typically source globally for their components or raw material may see made in the same country as being local. Sourcing within the same country may avoid some of the most significant disadvantages of global sourcing for such firms – avoiding issues associated with input taxes or the long lead times from transporting components around the world.