Business Tips 101: Supply Chain Issues: Can You Bring Things Closer To Home?
Global supply chain challenges are changing the reality of doing business.
It’s increasingly tough to source raw materials, supplies, and products in the right quantities. And when your supply chain breaks down in this way, that can have serious consequences for your business.
So how do you combat the supply chain problems, while also tackling the additional issues of increasing costs, rising inflation, climate change, and a forecasted global slowdown? One way is to de-globalize your supply chain, as we’ll explain.
What’s causing these supply chain problems?
It doesn’t take much to throw a spanner in the works of a smooth-running supply chain. A scarcity of a particular raw material or ingredient can quickly de-rail an efficient chain of supply, causing delays to deliveries, raising demand, and pushing a rise in prices.
We are currently facing a perfect storm:
The Covid-19 pandemic – very few industries were prepared for the massive impact of the Covid pandemic. Many sectors and key industries were forced to shut down completely. Staffing levels dropped as employees fell ill. And a large number of businesses were faced with falling revenues and poor cash flow. Some sectors are still not functioning at full capacity, which is holding back production and slowing down deliveries.
The problem of globalization – cheaper air travel and improved freight conditions for shipping have turned the world into one giant global market. You can buy bananas from Costa Rica, lamb from New Zealand, and gas from Russia. During normal conditions, this works fine. But faced with the growing threat of climate change, and the huge carbon footprint of a global supply chain, global exports are no longer a sustainable option. To combat this, many sectors are aiming to de-globalize their imports and exports – but the infrastructure that’s needed for a whole industry to de-globalize won’t appear overnight.
Geo-political issues in key territories – with so many global supply routes still in place, any unexpected geo-political changes can have a profound effect. The Ukraine/Russia conflict may have been brewing for years, but no one was expecting an out-and-out war. This terrible conflict is costing lives, but it’s also having a damaging effect on world trade. As a major supply of oil and gas, sanctions against Russia are pushing up energy prices. And with Ukraine being a key exporter of corn, Russian blockades in the port of Odessa are reducing grain supplies and pushing up prices.
In business, we crave stability. Uncertainty and surprise threats are the enemy.
A move to local supply chains and greener operations
De-globalizing your supply chain and ‘going local’ with your providers is one key option.
By de-globalizing your supply chain you can:
Switch to local suppliers – review your current supplier network and gauge how reliant you are on international and overseas providers. Where possible, build a local supply chain that removes some of the key problems of being reliant on an international supplier network.
Cut down on delivery times – If you can find suppliers who are based closer to you, you might be able to cut down on delivery times and speed up the efficiency of the whole supply chain.
Reduce the cost of logistics – shipping, air freight, and logistics costs can all be slimmed down if you’re working with a local supplier. The additional logistics costs of being part of a globalized chain can be significant. Choosing a local supplier removes some of these costs entirely, and reduces your main delivery expenses.
Simplify your tax and customs costs – When you import and export across borders, you’ll almost certainly find yourself paying customs fees and some form of goods & services tax (GST) or value-added tax (VAT). If you can find a national supplier within your own territory, you simplify the whole customs and excise process and reduce your liability to cross-border taxes too.
Reduce your carbon footprint – one of the big drivers of going local is the business focus on becoming greener and more sustainable. By going local, you reduce the air miles that your supplies cover. This cuts back your logistics-driven carbon footprint and helps you meet your sustainability targets. Which is good for marketing too!
Dismantling your existing supply chain is a big task. But after a decade or so of ‘offshoring’, it might be worth looking at options to bring supplies and production closer to home.