Local Sourcing During the Economic Downturn? You Bet

Before the recession hit, local sourcing became all the rage (at least as much as rages exist in our tame corner of the enterprise). After all, when transportation costs are high, when global capacity is constrained and when raw material costs are often higher specifically where they're consumed the most for export sales, local sourcing -- especially local sourcing for local consumption -- makes sense. But even today, during the economic downturn, when global sourcing hotspots have excess capacity and suppliers are coming to the table to deal, does it still make sense? You bet.

Procurement Leaders just ranted a short article highlighting how Panasonic is realizing significant benefits from local sourcing. According to the story, the most profitable unit in the company is the one that makes air conditioners and domestic (i.e., household) appliances. And it just so happens that this division is the one selling most into global markets. In fact, most of the revenue from this unit came from "emerging economies such as the Bric countries (Brazil, Russia, India and China) and the Mint countries (Mexico, Indonesia, Nigeria and Turkey)." To meet the needs of these local markets, Panasonic's CFO, Makoto Uenoyama, "said that the company would look to local procurement in order to maximise profits. Procurement Leaders quotes in translation that "We won't make money by sticking to Japanese standards for high quality and high costs ... Basically we are attempting to do everything locally -- product planning, design, development, production, and parts procurement -- in those markets."

This is a classic example of good procurement policy following the business need -- or sourcing form following function. By localizing their supply chains, Panasonic will not only be able to tap into a low-cost supply base without having to ship parts around the globe at added expense, they'll be able to localize products based on regional preferences and variations. Which is a winning formula for thriving in just about any market -- even one where sales are becoming harder to come by.

Jason Busch

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