Global Sourcing Watch: Think Twice About the Implications of Switching From Small Suppliers

Over on Purchashing's Blogs Richard Weissman recently told a useful tale about, in his words, "the growing need for supply chain due diligence". However, I'd characterize his story as much more than just supply chain analysis. Rather, it's a timeless anecdote about the need to think three steps ahead about the implications of one's current actions. To summarize the story he shared, let's start with the outcome -- a friend of his family is losing his job at a small machine shop because one of their customers previously moved spend away from the local supplier (where the friend is employed) to an offshore alternative. So you might look at this -- as I did at first -- as a form of procurement Darwinism. In other words, may the best supplier win and too bad for those who are innocent bystanders which are caught up in it (i.e., the employees).

But the story gets more interesting. As Richard opines, "this in itself is not breaking news but seemingly a regular occurrence in an industry segment that has been under bombardment for the past decade ... [but] This customer was 50% of their business and the loss was devastating to the machine shop." In the end, the supplier was "never able to recover and began to dissolve the business. However, the customer who moved their purchases to China was unhappy with the quality of the products they were getting and tried to resource back to the machine shop. It was too late. The shop was in the process of liquidation."

Is this a fable that suggests moving to China -- and global sourcing in general -- is a bad idea? Absolutely not. But it does show the importance, as Richard suggests later in the blog post, of splitting business between suppliers both to develop and maintain multiple sourcing options as a form of risk hedging. Moreover, it suggests the need to always maintain and develop local suppliers, specifically, as an insurance policy against many types of global risks from low product quality to shipping delays to rising costs as a result of variability in tariffs, duties, labor or raw material price variances.

Jason Busch

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