The last few years have been turbulent for small businesses, and many are now looking for ways to mitigate the impact of future disruption. Given that many uncertainties have been as a result of supply chain issues, this is a key focus.
One tactic is to move to a more local supply chain; this can reduce costs but also build resilience, reduce risk and help your company become more sustainable. According to a recent report from McKinsey , 40 percent of business leaders are looking at switching to suppliers in, or close to, their home location (a practice known as "near-shoring") to make supply chains more resilient.
What is local sourcing?
Local sourcing refers to finding supply chain partners in, or closer to, your own country. This article will provide an overview of the key benefits of building and using a more local supply chain.
Benefits of a local supply chain
Arrangements with local suppliers can generally be more agile than with those that are further away. They can respond to queries faster, and shipping is easier to rearrange when supply chains are shorter. Jewellery business Lily Arkwright has switched from a US to a UK supplier of lab-grown diamonds to address issues around communication and delays.
“We were finding that it took a lot of time to get product into the UK because the supplier was in a different time zone," says Philip Dawson, Lily Arkwright's managing director. "We could send an email and not get a response for two days."
This lost time is especially important for a business that sells engagement rings, Dawson explains.
“People don’t generally plan engagements very far ahead of time, so we’ll often get someone coming to us, choosing a ring, and then wanting to take delivery of that ring very quickly, within a couple of weeks.”
Managing your small business' cash flow while making changes to your supply chain can be a tough balancing act. With a payment period of up to 54 days¹, the American Express® Business Gold Card gives you the flexibility you need to focus on what works best for your business.
With global supply chains in disarray, a key advantage to local sourcing today is cost reduction. The pandemic led to a huge shutdown in shipping capacity, and, as restrictions eased, global shipping was overwhelmed with pent-up demand. The cost of shipping and logistics has increased enormously, often making it impractical to ship products to the UK from overseas destinations.
Elicyon is an architecture and design agency that works with luxury homes. The company’s 35 staff have traditionally sourced materials and furnishings from all over the world but, in recent years, the business is increasingly sourcing from the UK.
“The huge increase in the cost of logistics and transport has been a big factor in us choosing to source more materials locally,” says Charu Gandhi, the company’s founder and director. For example, Elicyon now buys most of its rugs from a UK supplier rather than direct from India, and lighting that used to be bought in France and the Czech Republic now comes from the UK.
Improved Environmental Performance
Localising your supply chain reduces your carbon footprint, which not only saves money but can reassure the growing number of customers for whom environmental issues are a key concern.
Reduced shipping distance improves a business' environmental performance as it lowers fuel emissions. Along with a UK supplier for its lab-grown diamonds, Lily Arkwright has switched from a German supplier to a UK company to supply mounts for its engagement rings. “Today, 75% of the lab diamonds and 80% of mounts are sourced in the UK, and that has massively improved our sustainability,” says Dawson. “We are very conscious of the ethical implications of products and, while lab-grown diamonds are not carbon zero, they are a lot better than mined diamonds, and reducing the transport has also helped us to meet our carbon targets and become more sustainable.”
Elicyon has developed close partnerships with local suppliers that focus on not only speeding up the time to complete projects, but also improving the quality of the end product. “If we are working with a supplier in the UK, we’ll invite them to our office," says Gandhi. "It’s helpful if they can meet the designer and visit the customer site to check the specification.”
“We often visit craftsmen who are making custom pieces for us, to see the work in progress, and that is easy to do more frequently in the UK.”
This local arrangement means that the team can ensure the client’s wishes have been translated properly. “We can visit suppliers at every stage and discuss what works, and look at another prototype a week later, rather than waiting a month for something to arrive from Dubai, only for it to need redoing,” she says.
How to build your local supply chain strategy
As we've learned, there are a number of benefits to building a local supply chain, including:
- Improved Agility
- Cost Savings
- Improved Environmental Performance
- Better Collaboration
When deciding if and how to update your supply chain management strategy through sourcing locally, it's important to bear all of these potential benefits in mind in both your short- and long-term plans. For example, looking exclusively at cost savings could be a mistake, says Tevin Tobun, chief executive of logistics specialist Gate Ventures. Because while prices can shift, other benefits won’t.
Optimising your supply chain means looking at strategies to deliver more value from relationships with suppliers beyond lower pricing.
One quick win when working with suppliers is to make payments using an American Express Business Gold Card. Each time you spend, you earn Membership Rewards® points³, which you can redeem with hundreds of retailers. For example, if you earn 50,000 Membership Rewards points, you could redeem that for a £250 voucher at Amazon.
Consider talking to local suppliers about smaller production runs that allow you to respond to short-term opportunities for niche products or to test new products in a more agile way. With lower delivery costs, it might be possible to arrange more frequent deliveries, meaning you can free up space in your warehouse and improve your inventory control.
Tobun advises businesses to anticipate trends in supply chain costs and build a strategy that combines short-term cost-savings with long-term value. “Over time, you might identify some areas where there is real value in having a close partnership with an onshore supplier,” he says. “But in other cases, if the benefit is solely cost and those costs start to come down, your business might benefit from a hybrid supply chain management strategy, combining onshoring of items that rely on speed and high quality, and offshore for more commodity items.”
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. The American Express Business Gold Card has an annual fee of £195 (£0 in first year).
2. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Basic Card.
3. Rewards shown are examples that are subject to availability and may change. Examples valid as of February 2022. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply. Enrolment is required.