Isn’t it funny how, just when you think you have a firm grip on your sourcing strategy, something happens – dramatic shifts in fuel prices, or a faltering economy – to make you want to rework the whole thing?
It can be difficult to keep your cool when changes disrupt the world surrounding your supply chain. But be careful: knee-jerk reactions to external changes can leave you with a sourcing strategy built for the short term, without the flexibility to respond to even more changes that the future will inevitably bring.
Near Sourcing vs. Global Sourcing
Improved transportation technology, more sophisticated use of the Internet and other advancements have toppled trade barriers and opened doors to worldwide sourcing options. That shift – along with relatively cheap labor and transportation in Asia – has made global sourcing more attractive over the past few years.
In the last few years skyrocketing fuel prices sent many businesses scrambling back the other direction to adopt “near sourcing” strategies that can drive down costs and gain efficiencies by procuring products from suppliers closer to their facilities or customers. Recently, though, fuel prices leveled off and new economic challenges emerged, leaving many wondering which sourcing strategy makes sense for their business.
What’s the answer? Simply put, there is no one-size-fits-all sourcing solution. Your sourcing strategy should cater to your business and its individual needs, which can mean a mix of global sourcing and near sourcing. To help you determine what works best for your business, let’s dive deeper into some key considerations.
Cost
Near sourcing would seem to be cheaper – especially when fuel prices rise -- because you’re moving goods a shorter distance, from manufacturing facilities that are closer to your own facilities and customers. However, even when fuel is expensive, it may actually cost more than global sourcing. Even compared to Mexico, Asia’s low labor costs and optimized transportation infrastructure for low-cost sourcing often makes it the cheapest alternative.
Speed and Responsiveness
Global sourcing may have the edge on cost -- but near sourcing offers speed, and speed offers flexibility. If your business model places a premium on being nimble, having your suppliers nearby can help you keep ahead of market changes. This is extremely valuable for companies that plan inventory based on sudden swings in consumer demand, such as retail and consumer electronics businesses.
Near sourcing provides a “fast-turn” solution to bring in inventory as needed, instead of large volumes periodically. Adjusting to sudden demand changes between seasons would be impossible if the products were being shipped from overseas.
Supplier Management
Some think near sourcing offers greater operational control over suppliers, as opposed to working with suppliers on a different continent halfway around the globe. In fact, there are supplier management solutions available today that allow companies to monitor and connect all of their suppliers, regardless of geographic location. Being able to keep close watch over your suppliers is a fundamental part of any supply chain.
Customer Market Locations
Near sourcing can be a very effective short-term strategy. But globalization is a long-term trend, and global sourcing strategies can provide the flexibility to broaden your market to international customers. When you serve customers across the globe, your definition of near sourcing may change significantly.
Finding the Right Mix
Choosing the right strategy hinges on your company’s needs at the product level. Your sourcing strategy should be optimized to match your products with the right mix of effectiveness and efficiency. “Effectiveness” is about speed and visibility, and for products benefitting from these attributes, near sourcing is often the answer. “Efficiency” focuses on lowering costs for products that don’t need rapid restocking, which makes global sourcing more attractive.
Companies should also evaluate the distributions costs and opportunities costs of each sourcing location, and other factors behind bringing products to market, including the cost of your products, insurance, freight, warehousing and regulations.
Third-party logistics providers (3PLs) can help you cater your sourcing strategy to fit your business needs. A good 3PL will help your company get products to market with the most efficient, effective and flexible strategy. Working with a 3PL allows you to lean on its existing infrastructure and expertise, while focusing on your core competencies.
Regardless of your sourcing strategies, opportunities to grow your business abound. To avoid getting locked into a single sourcing strategy that can keep you from taking advantage of those opportunities, your supply chain should have the built-in flexibility to respond to market changes and customer demand.
Brad Mitchell is president of UPS Logistics and Distribution. With more than a century of experience in transportation and logistics, UPS is a leading global trade expert equipped with a broad portfolio of solutions.
It can be difficult to keep your cool when changes disrupt the world surrounding your supply chain. But be careful: knee-jerk reactions to external changes can leave you with a sourcing strategy built for the short term, without the flexibility to respond to even more changes that the future will inevitably bring.
Near Sourcing vs. Global Sourcing
Improved transportation technology, more sophisticated use of the Internet and other advancements have toppled trade barriers and opened doors to worldwide sourcing options. That shift – along with relatively cheap labor and transportation in Asia – has made global sourcing more attractive over the past few years.
In the last few years skyrocketing fuel prices sent many businesses scrambling back the other direction to adopt “near sourcing” strategies that can drive down costs and gain efficiencies by procuring products from suppliers closer to their facilities or customers. Recently, though, fuel prices leveled off and new economic challenges emerged, leaving many wondering which sourcing strategy makes sense for their business.
What’s the answer? Simply put, there is no one-size-fits-all sourcing solution. Your sourcing strategy should cater to your business and its individual needs, which can mean a mix of global sourcing and near sourcing. To help you determine what works best for your business, let’s dive deeper into some key considerations.
Cost
Near sourcing would seem to be cheaper – especially when fuel prices rise -- because you’re moving goods a shorter distance, from manufacturing facilities that are closer to your own facilities and customers. However, even when fuel is expensive, it may actually cost more than global sourcing. Even compared to Mexico, Asia’s low labor costs and optimized transportation infrastructure for low-cost sourcing often makes it the cheapest alternative.
Speed and Responsiveness
Global sourcing may have the edge on cost -- but near sourcing offers speed, and speed offers flexibility. If your business model places a premium on being nimble, having your suppliers nearby can help you keep ahead of market changes. This is extremely valuable for companies that plan inventory based on sudden swings in consumer demand, such as retail and consumer electronics businesses.
Near sourcing provides a “fast-turn” solution to bring in inventory as needed, instead of large volumes periodically. Adjusting to sudden demand changes between seasons would be impossible if the products were being shipped from overseas.
Supplier Management
Some think near sourcing offers greater operational control over suppliers, as opposed to working with suppliers on a different continent halfway around the globe. In fact, there are supplier management solutions available today that allow companies to monitor and connect all of their suppliers, regardless of geographic location. Being able to keep close watch over your suppliers is a fundamental part of any supply chain.
Customer Market Locations
Near sourcing can be a very effective short-term strategy. But globalization is a long-term trend, and global sourcing strategies can provide the flexibility to broaden your market to international customers. When you serve customers across the globe, your definition of near sourcing may change significantly.
Finding the Right Mix
Choosing the right strategy hinges on your company’s needs at the product level. Your sourcing strategy should be optimized to match your products with the right mix of effectiveness and efficiency. “Effectiveness” is about speed and visibility, and for products benefitting from these attributes, near sourcing is often the answer. “Efficiency” focuses on lowering costs for products that don’t need rapid restocking, which makes global sourcing more attractive.
Companies should also evaluate the distributions costs and opportunities costs of each sourcing location, and other factors behind bringing products to market, including the cost of your products, insurance, freight, warehousing and regulations.
Third-party logistics providers (3PLs) can help you cater your sourcing strategy to fit your business needs. A good 3PL will help your company get products to market with the most efficient, effective and flexible strategy. Working with a 3PL allows you to lean on its existing infrastructure and expertise, while focusing on your core competencies.
Regardless of your sourcing strategies, opportunities to grow your business abound. To avoid getting locked into a single sourcing strategy that can keep you from taking advantage of those opportunities, your supply chain should have the built-in flexibility to respond to market changes and customer demand.
Brad Mitchell is president of UPS Logistics and Distribution. With more than a century of experience in transportation and logistics, UPS is a leading global trade expert equipped with a broad portfolio of solutions.
