Anyone who spent some time reading the news in 2021 saw the pileup of ships waiting for berths at the ports of Los Angeles and Long Beach. Over 100 ships were waiting to unload goods and get on their way again. This logjam threw everyone’s supply chains into a massive upheaval that some have only just recovered from. And localization efforts quickly took the spotlight.

As consumers and manufacturers are no longer tolerating stock outages and delays in production, it’s left shippers wondering what can be done to mitigate and improve supply chain operations. Embracing the shop local and farm-to-table style of business could be a net benefit for your business and supply chain.

What is a Supply Chain Localization?

A local supply chain is just that, local. It’s producers, suppliers, and distributors that are close to the point of consumption, whether it's a manufacturing plant, a distribution center, or consumers. Local supply chains cut down on transportation costs, improve delivery times, and allow for more flexibility within the supply chain.

Many shippers have gone global with their supply chains. Setting up facilities in China, Taiwan, Indonesia, Colombia, etc. All economical options to offset the costs of producing goods, until it takes an extra three weeks to receive goods and millions of dollars worth of sales have fallen by the wayside.

Benefits of Supply Chain Localization

Bringing operations closer to home over an international setup may seem like an expensive and massive undertaking, but the overall benefits outweigh the upfront costs. The main benefits are:

• Reduced costs - local suppliers often charge less than foreign suppliers due to lower transportation costs and other related expenses. While the actual price of the goods might be more expensive the costs to move it within the network will be infinitely lower.
• Improved relationships with suppliers - Working closely with local suppliers businesses can foster better relationships with them. Overall, improving the quality of service that the supplier provides leads to better deals in the long run. Not to mention knowing that there is a true partnership in the agreement.
• Increased flexibility - Local suppliers can be more responsive to changes in the market and can provide businesses with more flexibility. Someone operating in the same markets as a shipper will more often than not feel the same pressures and strains that a shipper will feel and can help get things back on track faster than waiting two weeks for the solution to cross the ocean.
• Improved customer service - By sourcing materials and services locally, businesses can provide better customer service. Not only that but consumers are demanding more visibility into the entire supply chain, especially sourcing practices. Having transparent sourcing information satisfies consumers.

How to Localize Your Supply Chain

Localizing an entire supply chain is not something that can happen overnight. There are offices, warehousing, manufacturing, staffing, etc. to be set up that take time. However, starting with one small piece at a time could be the key to making the process more manageable.

Those first steps for establishing a local supply chain might include:

Finding materials that can be locally sourced

For example, a diamond distributor wouldn’t set up operations in Peru as that's not somewhere diamonds are naturally occurring. A U.S. shipper looking for a new supplier closer to home might try Canada, as they have started ramping up diamond production.

Having a supplier on the same continent where all you need is a day or two and a truck to get materials far outweighs waiting for a ship coming from Namibia.

Diversifying the supply chain portfolio

After the unprecedented times of the pandemic, it became more clear than ever to not have all the eggs in one basket. Making sure there is diversification across the organization is crucial.

When first starting the localization process, start small. Get some regional suppliers to work in conjunction with international suppliers as a dry run before tapering down some of the overseas operations.

Get into the nitty gritty

When starting the hunt for a new manufacturer, warehouse, or supplier, get into the nitty gritty in the discovery process to ensure that it’s a good match. Ask prospective partners, what their production capacity is, lead time, can they meet current demand and future demand. Getting all of this out in the open is crucial; ahead of time so that there aren’t many surprises down the road.

Complications of Supply Chain Localization

While it might seem logical to make this type of leap, it’s not without issues. There are significant factors to consider, outside of cost that could hinder the supply chain more so than 100 sips at sea waiting to unload.

Limited resources - If the goods needed for manufacturing aren’t naturally occurring in an area that is close to home then it’s hard to localize it. For example, someone looking to localize growing wheat out of Arizona, might not have as much luck finding a local supplier. The best they could do would be the Midwest, versus getting it from Ukraine or another international supplier.

This can limit the range of products and services they can provide, as well as their ability to adjust to changes in demand. It can also impact their ability to meet large orders.

Lack of expertise in supply chain localization - local suppliers may not have the same expertise as global suppliers. Depending on how many shippers are using this new supplier they might have trouble with forecasting demand which could throw upsets into the supply chain worse than before.

Limited access to technology - local suppliers may not have access to the same technology, thus limiting their ability to streamline processes, improve communication, and provide insights into performance.

Maintenance for a Local Supply Chain

All the complex sourcing and legal stuff is done and out of the way, now what? Just as a shipper would with an international supplier the same standards should be kept for local ones.

Establish clear goals

Set these goals internally and externally. Internally have those KPIs and stress the importance of hitting metrics with a partner. In the same lane internally, have a plan for the future. What does the relationship with this vendor look like long term? Are they the new permanent home for manufacturing or is it a shorter-term situation till the right one is found?

Invest in technology

Technology is key to some of the important advancements within a company. Ask new local vendors if they have an integration platform that way data can flow clearly and without issue from the place materials originate from all the way to the end-consumer. Through strong technological policies, significant change can be made.

Still Curious?

Struggling to make those local connections to bring the supply chain in locally? It happens to the best of us. Whether supply chain localization is too daunting of an undertaking or honestly, there are too many starting points... Reach out to Redwood and give us the heavy lifting. We have the supply chain experts to help you both analyze the opportunities and implement the best strategies.