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• The advancement of global trade over the last few decades has seen an explosion in global trade. Availability of information has led companies to seek to reduce costs by outsourcing processes to countries where the cost of labor is low.
• However, the last few years have seen nationalist movements gain pace. The Brexit vote and the China-US trade war are a few examples. The disruptions brought about by Covid-19 and more recently the Russia-Ukraine war has had major impacts on global supply chains.
• Companies have had to rely on domestic markets to hedge against the uncertainty of international sourcing. Domestic sourcing presents certain key benefits over international sourcing.
Leveraging Domestic Vendor Facilities
When you work with local vendors, you can take advantage of shorter lead times to carry less inventory. This can help reduce your own warehouse costs both in terms of space and the average volume of inventory held throughout the year. You can commit the freed-up resources to other operational needs.
Easier Quality Control
Quality checking is integral to contract management. It’s easier to monitor the quality of items when you are sourcing from the domestic market. When working with multiple small vendors, you can have programs to train them so that you standardize quality. When working with a bigger firm, you can set up regular meetings and supervisory visits that will help standardize quality.
Short Lead Times
When sourcing from the domestic market, there are fewer steps involved in the supply chain. This greatly reduces the likelihood of disruptions caused by geopolitical events, pandemics, or natural calamities. A stable supply chain is extremely important in sectors such as fast food, where stores don’t keep a large amount of buffer stock.
When a business wants to launch a new product that requires customization of the inputs, the process can take a long time when the input supplier is on another continent. Members of the product design team may have to fly there for meetings and quality checks. This might mean that the launch will take longer than it would have if the suppliers were local. A domestic sourcing plan thus offers a business the chance to launch products quickly.
Components of a Domestic Sourcing Plan
When your company wants to put together a domestic sourcing plan, certain components will ensure that you get the most out of it. The plan should align with your overall corporate goals.
Alignment of Ideals
When selecting local suppliers to work with, it’s important to find those whose ideals are in line with yours. Working with a particular supplier has an impact beyond just the transaction. If your company is constantly improving its offerings to customers through innovation and improvement, your suppliers should be looking to do the same. Find out how much they invest in research. How efficient are their processes?
Another example would be if your business is an advocate for sustainable production methods, recycling, and proper waste disposal. It’s important to find out whether domestic suppliers you intend to work with also value these products. If they do not, they could pose a reputational risk to your brand.
Cost carries significant weight in the choice of vendor equation. You want to work with vendors offering competitive prices so you can pass on the benefit to your customers. As such, you should evaluate your vendors not only in terms of the quote they are offering now but also on their ability to regulate costs. A vendor who is invested vertically in their supply chain may be better placed to absorb price shocks and not pass on the effects to you. For instance, in the fast-food business, a large company that plants its own potatoes is in a better position to control costs compared to one that aggregates stock from many small-scale farmers.
A good domestic sourcing plan should entail contingency measures in case of a disruption. The sourcing department should identify potential suppliers who can quickly step in when there is a spike in demand or a disruption in a particular shipping route. In fact, the procurement team should constantly be on the lookout for any signs of disruption and set in motion contingency plans.
Your local domestic shipping plan should entail developing strong relationships with suppliers. You should take advantage of the proximity to suppliers to be in constant communication with them and find opportunities to create value for both parties. For instance, if a vendor supplies important parts for your business to assemble, you should work with them to find ways to improve quality or reduce costs through innovation. Exchanging data on forecasted demand will help such a supplier plan their production better. In fact, the collaboration will make your business an important client to them. They will dedicate more resources and time to serving you as best as they can.
Agreements on Sensitive Technology
As you partner with domestic suppliers, it’s important to come to an agreement regarding the treatment of sensitive information parties may acquire about one another during the contract period. Put in contract clauses that protect your patents from reverse engineering. Ensure that your copyrights and trademarks are well registered to avoid legal tussles later.
Get the Right Software to Help Your Sourcing Efforts
Technology will greatly improve your sourcing efforts. You can have a central repository for all your contracts and can also set up such things as reminders of your contractual obligations. Further, e-procurement adds transparency to your sourcing by creating an audit trail for awarding and execution of your contracts.