Not long ago, offshoring of goods and services was a foolproof way to keep costs down—if you could manage it. Now, however, due to changing markets, local sourcing is experiencing an upswing. Helped by Gabriele Rizzo, futurist adviser for private and public international defense organizations, and Alexander Bird, CEO of micronutrient food manufacturer Kiss My Keto, let's look at the pros and cons of local versus global supply chains.
Benefits and Drawbacks of Local and Global Supply Chains
Since local supply chains are often smaller, local suppliers may require less of an initial investment and allow smaller orders, which results in lower stored inventory costs.
In some foreign countries, worker wages are increasing, so the gap in labor costs between local and global supply chain strategies is diminishing. For instance, according to Eurostat data released in the fall of 2018, wage growth in the eurozone reached its fastest rate for two years, accelerating in the second quarter of 2017.
Also, goods and services production is becoming more specialized and geared to local customers, and in such cases, there is often an advantage of being physically close to the buyer. These factors led global management consulting firm AlixPartners to report that 69 percent of the 106 U.S. and western European manufacturing firms that responded to their 2016 annual survey were considering moving production closer to their home bases.
But global supply chains have substantial benefits as well. Today's economy is unquestionably global and having only local operations may result in lost opportunities and stalled growth.
Also, depending on your industry—and especially if you are in manufacturing—you may face significant skills shortages in certain U.S. regions, but can readily find available labor in countries such as China and Mexico. Raw materials may also be less expensive in a foreign market, and global supply chains also allow businesses to take advantage of the innovation afforded by emerging markets.
That said, time lags, shipping delays and language and communication barriers associated with global supply chains may negatively impact a business's speed, agility and on-time delivery record.
Finally, political situations can sour quickly, so global supply chains in certain regions of the world may carry a higher risk of business disruption overall.
For more where this came from, check out the American Express Business site.
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