The world of procurement is often tricky. It involves choosing one appropriate candidate, ultimately benefiting them, while rejecting and disadvantaging others.
That said, it isn’t just the businesses that are picked which will profit from winning the contracts, it’s also their supply chain, their local economy, fellow businesses, families, and so on.
The above is particularly true when we take into consideration just how lucrative and valuable some contracts can be. With this in mind, you can see why the role of the buyer in the process of procurement can be so complex.
One aspect of sourcing which received considerable attention during the pandemic was that of locality. The idea of ‘shop local’ was thrust into the limelight as businesses and consumers not only struggled to get deliveries from further afield but also chose to support businesses closer to home in a community spirit approach.
With responsible consumerism taking centre stage in the modern world, shop local is gaining even more traction. However, that is not to suggest that global sourcing doesn’t provide equal opportunity and benefit. In this article, we are going to consider the differences between local and global sourcing before going on to detail some occasions on which local should be the preferred option.
It should come as little surprise that the process of global sourcing involves the procurement of goods and services from international markets which cross geographical and political borders. While there exist multiple reasons why businesses and organisations opt for global sourcing as opposed to procuring goods and services locally, the most common is lower cost skilled labour and cheap raw materials not being available in their home country.
The vast majority of well-known multinational corporations we interact with on a daily basis utilise the capabilities of international outsourcing, calling upon low-cost, skilled labour.
According to dragonsourcing.com: “the workforce in countries like China, India, Taiwan, Vietnam and Indonesia are aware of the latest trends in production techniques and they also know how to implement these advanced manufacturing techniques in their operations, enabling them to manufacture products that conform to global quality standards.”
As well as bringing benefits to the purchasing organisation in regard to cost and increased production capacity, global sourcing also offers support to the local economy of the area of production, providing employment opportunities in what are often poor areas.
Did you know that 72 per cent of industrial and B2B buyers suggest that they “always or generally prefer to source locally” in contrast with the 10.8 per cent who note they “always or generally prefer to source globally”?
Quite the opposite to global sourcing, local sourcing is simply the procurement of goods and services from local suppliers within your home country.
In a similar way to global sourcing, where buyers can create employment opportunities within their international markets, local sourcing creates jobs and wealth within the domestic scene. Likewise, bringing employment to the local area will also exist as a great tool for PR, highlighting a business or organisation’s commitment to their own local community, much like shop local we mentioned above.
Local sourcing, however, can lead to considerably higher prices, thanks to material and labour costs generally being more expensive domestically.
When sourcing locally makes sense
There are a number of situations when sourcing locally is the most effective option – we’ve detailed some of them below…
To gain better control of your products
Closer relationships help ensure better control and enable faster problem solving – when concerns arise, being geographically closer to suppliers allows for face-to-face visits. Similarly, if the buying organisation encounters problems that will have knock-on effects for the supplier, the ability to arrange face-to-face meetings is obviously preferable when seeking a quick resolution.
Costs associated with co-ordination can be significantly reduced by better lines of communication.
When your local economy needs you
Spending on local businesses and industries, as we’ve previously noted, is of incredible value to the local economy.
Not only does this bring increased funding from taxation, but it also brings jobs and prosperity to the local area and region. More people in work leads to more local spending, creating a virtuous circle.
This can be a particularly powerful tool in the armoury especially for public sector organisations in local areas which have been experiencing economic downturn.
When you’re trying to improve your organisation’s carbon footprint
Reduced travel, reduced fuel, and less packaging all lead to reduced impact on the environment. By sourcing locally, organisations can successfully help protect the environment and contribute to the goal of achieving net zero.
All the above became appropriate solutions to sourcing problems during COVID-19 – with the pandemic existing as the perfect example of a time when buyers needed to have better control of their products, when they needed to support local businesses and, thanks to COP26, when they needed to demonstrate a commitment to reducing their carbon footprint.
The factors mentioned above all fall under the concept of social value, which sits at the heart of the UK government’s proposed procurement reforms. Social value, as described by Social Value International is: “about understanding the relative importance of changes that people experience and using the insights we gain from this understanding to make better decisions.”
Similarly, e-procurement platform, Delta eSourcing, notes how social value “is not something which can be added on, rather central to an organisation’s entire way of doing procurement.”
As of January 2021, the UK government’s Social Value Model was mandatory in all central government contracts. But what it is the ‘Social Value Model?’. In effect, it sets out all of the government’s social value priorities for procurement, detailing a list of objectives which central government departments are strongly encouraged include in their procurement process. The objectives centre around five main themes:
- COVID-19 recovery
- Tackling economic inequality
- Tackling climate change
- Providing equal opportunity
- Championing wellbeing
Ultimately, the model was designed to make it easier for buyers to assess and evaluate the social value detailed in tender responses and to incorporate it into procurement of all kinds.
While currently this is just a necessity for central government contracting, the model is being increasingly utilised within public sector contracts as a whole in England.
We anticipate the coming years will involve increased focus on social value which may, in turn, lead to a growth in local sourcing.
Mar 23, 2022.