While the Germans might turn their noses up at the use of cassava and sorghum as ingredient substitutes in beer, I suggest finding a bottle during your next trip to an emerging market and comparing it to the lime that Budweiser and others are putting into beer that is targeted at the Latino community in the US. Now that is truly crossing the purity line from procurement-driven material substitution in the spirit of cost, sustainability and local sourcing to creating an entirely new product category!
In contrast, local sourcing involving substitutions to reduce transportation and other costs legitimately makes sense. Sometimes it even makes sense in the case of crops that consume more water. The Just-Drinks article notes that Heineken is making beer from rice in the Democratic Republic of the Congo and “has set a target to source 60% of the raw materials for its African production locally by 2020." Might we call this “conflict rice”? We’ll leave that to our MetalMiner team to decide. Needless to say, the more folks involved in local farming and production, the fewer the resources to fund child soldiers and conflict in the region!
Some companies are setting large goals to shift the majority of their direct materials procurement to the regions in which they sell and distribute. We commend the fact that “Diageo has set itself a target to source 70% of the raw materials used in its African operations from within Africa by 2015” and “the local sourcing percentage is now up to 56% and Diageo says it is on track to achieve its 2015 target,” according to Just-Drinks and information contained in the Diageo’s 2012 Sustainability & Responsibility Report 2012.
We’ve observed a number of tactics companies are deploying in local sourcing programs. Among them, perhaps the most important one is supplier development, which, especially in emerging markets, is initially tied to working with governments and NGOs. Never underestimate the power of procurement to work with even the smallest of lower-tier suppliers to help ramp up production and quality. A shifting focus of purchasing and supply chain? You bet. But it’s one that matters to any organization that wants to achieve aggressive local sourcing goals.