June 3rd, 2021
For manufacturers that have adopted strategic sourcing methods to achieve supply chain agility, there’s one topic that has been top of mind throughout the ongoing corona crisis: Is it time to rethink globalization in the supply chain? And how can localization efforts support a global supply chain?
Pre-COVID-19, global trade was already beginning to be reconsidered in some instances as a result of Brexit and the dispute between the U.S. and China.
But aside from that, it was a flourishing market with no signs of slowing down. The vast majority of manufacturers took advantage of easy access to low-cost raw materials—the pros simply outweighed the cons.
Because of this, manufacturers have traditionally built their global supply chains around sourcing strategies that lacked proper risk evaluation. Today, manufacturers around the world have been confronted with their reliance on global suppliers. And now that they’ve experienced how globalization can impact supply chain operations, they’re moving away from being highly dependent on any one supplier, and, likewise, on any one region.
This is the second part of our blog series on strategic sourcing. Read the previous blog here: How Strategic Sourcing Helps Manufacturers Increase Agility
Globalization vs. Localization
From a sourcing perspective, globalization refers to the act of procurement on an international or global scale. For example, an automotive manufacturer in California may purchase all of their engines from one or more suppliers in China.
Localization, on the other hand, refers to the act of sourcing at a regional level. From a manufacturing standpoint, this most often means raw materials or individual components. For example, the same U.S.-based automotive manufacturer mentioned in the globalization scenario above may purchase all of their brake pads from one or more suppliers in Michigan.
Incorporating Localization in Your Global Supply Chain
As already mentioned, manufacturers have begun to look more critically at globalization practices, as well as localization practices, in their supply chains. This is mainly to ensure business continuity in the face of supply chain disruption, as it’s not as simple as globalization vs. localization when it comes to being fully prepared. That’s because a globalization-only approach to sourcing can severely impact supply chain operations, and the same goes for a localization-only approach.
A reliable strategy involves sourcing products locally and globally to achieve agility regardless of approach—JIT or other. Again, it’s not globalization vs. localization; it’s both. To avoid that globalization has a huge impact on supply chain operations when things go wrong, manufacturers should pinpoint vulnerabilities, minimize reliance on any one supplier or region, and assess possibilities for localization.
How Localization Impacts Global Supply Chain Management
In the past, manufacturers primarily focused on enhancing globalization in the supply chain. Because of this, globalization affected supply chain management in that the majority of suppliers were located overseas. That meant lower prices, longer lead times, and, overall, a very specific way of doing business with a long list of protocols specifically tailored to managing a global supply chain.
Today, globalization still affects supply chain management, and the majority of suppliers may still be overseas. The difference now is that manufacturers are shifting their focus: They’ve realized that their global supply chains are in need of localization. With this shift comes an entirely new set of processes and an entirely different approach to global supply chain management. For starters, new suppliers must be properly vetted, which includes making sure that you’re capable of doing business with them in the first place.
Digitalization Makes the Shift to Localization Easier
When manufacturers are EDI-enabled, they’re already one step ahead. Especially in the U.S. and Europe, more and more businesses are adopting digital technologies in order to keep up with changing market conditions and increased competition. And while it’s typically the larger retailers that oblige new trading partners to exchange business documents via EDI, manufacturers that exchange hundreds or even thousands of documents each year know that manual entry into a supplier portal isn’t a long-term solution.
It’s now much more common for these manufacturers to implement EDI solutions of their own and then impose similar EDI requirements on their own suppliers. That being said, many suppliers today are also capable of exchanging documents electronically and prefer to enter new business relationships with manufacturers that are have digitalized their supply chains.
Now that manufacturers have realized that an agile sourcing strategy requires localization and globalization in the supply chain, it’s more important than ever for them to make themselves easy to do business with. TIE Kinetix offers EDI solutions that have been designed with manufacturers in mind. And as a global company, TIE Kinetix enables you to incorporate both localization and globalization in your sourcing strategy by helping you to grow your supplier community in whichever direction you choose.