Buy Local – How Domestic Supply Lines Mitigate Risks

Today, I have an article from Nigeria citing a move by the Federal Government of Nigeria to establish structures to increase the patronage of locally produced goods and services.

So once again, we see more and more that buying local is recognized as a positive domestic policy.

Given that government procurement policy is often driven by social goals, it makes sense that public procurement would concern themselves with building up local communities, but what about private business?

Are there drivers that would compel private businesses to prioritize local resources over lower cost imports?

In the context of performing design and construction services, local man-power is almost always used.  Local trade knowledge, local code regulations, and licensing restrictions generally favor awards for local providers.  Even when large international firms are awarded, the labor performing the service is almost always local, but what about materials and equipment?

Our modern global market-place and our insatiable demand for goods make it nearly impossible to exclusively source domestic materials, but when given a choice, choosing domestic over imported materials and equipment can make a great deal of sense.

Today I want to discuss a few of the factors why you should choose local goods and materials over globally sourced products.

Less embodied energy

Embodied energy is the energy used to extract, process, and transport materials and equipment to their final destination.

Some materials have an inherently high embodied energy.  Some products simply require a high amount of energy for extraction and processing.  Examples of these types of materials are aluminum and wool carpet.  Petroleum based products like solvent-borne paints, polyvinylchloride (PVC) pipes, vinyl floors, and polyurethane insulation also have notoriously high embodied energy.

Unfortunately, manufacturing such products in low cost countries makes it financially quite appealing, so we tend to succumb to the temptations of importing these.

Given that these materials already have a high embodied energy, transporting them around the world adds to higher carbon emissions.  Sourcing high energy products domestically mitigates their impact on the environment.

So the next time you are sourcing materials for your project, consider environmental impact in your decision making.  You may find that choosing low cost material comes at a much greater cost than you thought.

Shorter lead times

So if the notion of reducing carbon emissions does not sway you to source materials domestically, how about reduced lead times?

Shipping products from China to the US takes between 17 to 33 days, from Germany to the US can be as short as 7 days or as long as 20 days, from Korea to the US you can expect 18 to 21 days, and from the Netherlands to US is 7 to 14 days.

In construction a 2 week lead time for an average size commercial project can add $50,000 to $100,000 in General Conditions costs.  There is also loss in productivity and potential loss of income from a delayed completion to consider.

Sourcing materials and equipment domestically reduces lead times dramatically and mitigates delays on your project.

Lower supply risks

Supply risks come in many forms.  Natural and logistical risks are present in every supply line.

Some risks are unavoidable.  You will never be able to predict a fire at a glass manufacturing plant that disrupts glass production or a spike in the factory activity index following Hurricane Irma.

However, logistical risks can be mitigated by sourcing materials locally.  Consider the potential impacts from; Port Worker’s Strike in Mombasa over a 400% increase to their health insurance rates, or strikes from copper mine workers in Chile and Peru which caused a global deficit of 44,000 tons. If your supply chain depends on resources from any of these countries, you could be impacted.

Sourcing materials domestically may help mitigate logistical risks from less stable systems around the world.

Taxes, Tariffs, and Trade Agreements

International trade agreements present a form of political risk.

Consider the risk of Companies with supply lines established in China in the current context of Trump announcing new tariffs on Chinese product.  How about the stress that UK based businesses must be feeling as they watch parliament argue whether to stay in the customs union after Brexit?  These are a few of the most notable examples of political supply risks that could impact your supply chain.

These kinds of political risks are nearly impossible to predict and can turn your supply chain upside down in the stroke of a pen.  Domestic sourcing completely eliminates this risk.

Closing

I certainly am not advocating for 100% domestic sourcing.  There are many wonderful high output and high quality material and equipment manufacturers all over the world.  Unfortunately, when considering suppliers we must consider all of the risks associated with those suppliers.  Domestic suppliers often represent a lower risk for many of the reasons I just noted.

Procurement tends to focus very strongly on savings.  Sometimes that focus can be blind to all of the other factors that impact that supply line.  Keeping a broader focus and more worldly view of every award decision is critical to ensuring your supply lines experience the least possible disruptions.

What about you?  Do you consider these factors when you source goods internationally?  Are there other factors you consider?  Tell me your stories.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

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