Last Friday, Spend Matters opined on a number of total cost and environmental implications of this announcement from Walmart suggesting that the retail giant is going to move towards a greater embrace of local sourcing for fresh produce (i.e., sourcing fruits, vegetables from local farms rather than leveraging regional or nationwide distribution). Even though I'm skeptical of how effectively this will work in practice for Walmart's fresh produce, I think the concept of local -- or at least regional -- sourcing is one that we'll see even more of in 2011. This will happen across industries, extending beyond the grocery business. But it won't just occur because we want to be more "green."
In fact, I see a number of reasons for an increase in working with more localized suppliers in general. Many of the reasons below have nothing to do with CSR initiatives:
- The more local suppliers are, the more we tend to know about any operational or financial risk factors they may pose based on local personal and professional relationships. In a bad economy, we'll be more pensive than ever regarding how we can reduce or at least proactively act on risk. Local sourcing could very well play into this new emphasis.
- Let's face it -- the US dollar is a train wreck. Recent current movements suggest that the RMB (i.e., "Mao" money, as we call it in the office) and gold billets are probably a far safer near-term store of value than greenbacks backed by the full faith and credit of a government whose core competency is going into more and more debt with no end in site. Local sourcing will reduce the risk of overseas suppliers re-pricing contracts in local currencies or renegotiating based on the lower and lower value of the dollar.
- Given the general trend on both sides of the political aisle of looking at China's continued currency manipulation and one-sided trade and investment policies rather than sweeping the politburo's moves under the DC red carpet, it's likely we'll either see new types of incentives for buying locally or at least policies that raise the China -- and hence the low cost country sourcing -- price as well. Two can play the Sun Tzu game -- and it's about time we finally caught on. Unfortunately, realizing we're actually at war will cost us prices which were unrealistically low for the past decade (but at our expense).
- Given continued concerns over global supply availability -- thanks to regional demand in developing markets and a larger and larger consumer and business usage base (e.g., automobiles on the road in China) as well as financial speculation, it's likely that oil and energy prices will move in ways that become further disconnected from the US economy. The shorter a supply chain is, the cheaper it will be to operate. If the US double-dips and the rest of the large and/or developing market world economies remain flat or climb, local sourcing will be a smarter choice from a Spend Management logistics perspective.
- If commodity prices move against us as demands drop, one of the only ways we'll be able to beat cost out of the supply chain in a non-zero sum manner will be to focus on supplier development. It's far easier to drive Six Sigma, lean and other cost take-out focused supplier development programs locally rather than across the globe. Besides, a beer with your suppliers in the town next door or Central Europe taste far better than the oxidized rocket fuel that passes for "wine" in China.
- The shorter our supply chain, the less inventory that is necessary to carry. If we return to a situation where working capital was king as much as it was in 2008 and 2009, we'll place a greater emphasis on unit cost prices that factor in total total cost, including inventory carrying costs into the Spend Management equation.
Are there other non-green benefits of local sourcing that we're missing given the current and potential future state of the economy and world market? If so, drop a line or post a comment.