International trade grew steadily throughout the later half of the 20th century. This globalisation of commerce evolved in the past thirty years, blossoming into the hyper-intricate intercontinental web of supply chains and sourcing that dominated the globe until 2020. This era of supply chain globalisation was driven by the twin forces of speed and price. As a result, CPOs prioritised cost-containment and time to delivery over resilience and agility.
The globalised world derailed
Until just a few years ago, this trend looked as though it might continue indefinitely. Supply chains were on a trajectory of continued globalisation. They were headed for a world where goods and capital would move unrestrained at breakneck speeds from one side of the globe to the other for less than the price of anything made at home.
Domestic manufacturing in the Global North was going to have more in common with weekend volunteers churning butter at a renaissance fair than the vast industrial mechanisms that built vast amounts of the region’s modern wealth.
Meanwhile, the overexploited, ex-colonial global south was always going to provide a cheaper, faster, less human-rights obsessed source of labour, raw materials, and cheap consumer goods manufactured just-in-time, for just enough to turn a profit. As noted by author and business analyst Chris Sheedy in an article for intheblack, “just six years ago, just-in-time manufacturing and inventory systems were the toast of the town. Supply chains were long, transport was cheap, interest rates were low and international relations had enjoyed a decade of calm.”
Then, the COVID-19 pandemic threw a wrench into the delicate, dizzyingly complex workings of the machine. It may never be the same again. Pushed not only by the pandemic—which hit global supply chains like a gigantic, 10,000 volt reset button—but by the war in Ukraine, genocide in Gaza, and the worsening effects of climate change, the supply chain needle is swinging decidedly back in the direction of deglobalisation.
Should you localise your procurement process?
Decried as a period of relatively stagnant ‘slowbalisation’ by a World Economic Forum report, the trend is seeing procurement leaders take active steps to source goods and materials from closer to home, shift supply chains back within domestic borders, and make as much in-house as possible. Speed and cost, it seems, are now only slightly more important than the lengthening shadow of resilience.
Localising your procurement process is not a cheap or quick proces. The process might not be possible if the resources or materials you need aren’t manufactured locally. Higher domestic wages, energy prices, and the price of raw materials can all erode the benefits of procurement closer to home. The goal is to balance the resilience of localised strategic sourcing with cost effectiveness.
However, there are other benefits beyond simple resilience. Having your procurement ecosystem located closer to home alleviates many compliance issues that arise within the source-to-pay process. This can, for example, ensure your goods have had no contact with instances of deforestation, human slavery, or sanctioned governments.
Delivery times become more predictable because a shorter supply chain leaves less room for unexpected disruptions. Overseeing and evaluating a localised procurement process is easier than gaining visibility into the opacity of a distributed, impersonal, globalised supply chain. Lastly, in the hyper-globalised economy of the past thirty years, domestic manufacturing and purchasing have attained an ethical, premium image. “Locally sourced” is a byword for green credentials and higher quality products. Nearshoring the procurement process could be a significant value add further along the supply chain beyond simply increasing resilience.
