Why the trend of going local is making its way into the supply chain

‘Shop local’ is a retail movement that has gained real traction in recent years, as organisations attempt to encourage consumers to buy produce, clothing and day-today items from local, independent businesses, rather than large retailers.

Given the turmoil and upheaval experienced in the last two years, the same appears to be happening in the world of supply chain management, as the trend of ‘localisation’ picks up pace. It is not surprising, as all sectors have been severely hampered by availability issues during the COVID-19 pandemic and the ongoing effects of Brexit, amongst many other things. This disruption has forced many West Midlands businesses to rethink processes and procedures and take stock of how operations are currently run in an economic environment that continues to pack a punch.

Our latest Global Risk Report 2022 report, highlights this move away from worldwide supply chains to a more streamlined and locally focused strategy. In fact, 52% of companies agreed that the risks of a large complex supply chain now outweigh the benefits, with an overwhelming 89% admitting that the disruption of the last 18 months has revealed weaknesses in their supply chain. When you consider that nearly half of respondents stated that supply chains have been severely impacted since early 2020, it is clearly time to rethink how we manage, enable visibility, warehouse and transport goods around the world.

The issue is not just a global one, but affecting the day-to-day operations of West Midlands-based companies. In our latest Rethinking the Economy survey, a quarter of regional businesses admitted that one of the biggest threats in the next six months was the availability of goods or materials caused by supply chain issues. When you consider that more than a third of West Midlands businesses also pointed towards the ongoing impacts of Brexit, including supply chain disruption and complicated customs legislation, it is very clear that the movement of goods in and out of the region is a pressing matter. After all, in 2021 the West Midlands accounted for 8% of the UK’s total goods exports, with 46% making their way to the EU and 22% heading to North America.

The fact of the matter is, the effects of the pandemic have caused wholesale re-evaluation of supply chains, which has been exacerbated by further challenges, such as the disruption caused by Russia’s invasion of Ukraine, subsequent sanctions, and shortages caused by Ukrainian farmers being unable to produce and export grain that the world has come to rely on.

So how can West Midlands businesses build resilience into their supply chain? Localisation for shorter transit times that are less affected by global issues, running multiple smaller manufacturing plants rather than one large site, and using more than one supplier, are three major steps that can be taken to boost resilience. However, implementing these measures can be expensive – actions that are not wholly offset by reduced shipping costs, thus increasing the total cost to serve throughout the supply chain and for consumers, which ultimately drives up inflation.

It is important, therefore, to demonstrate agility when responding to supply chain challenges, such as the need to decouple from existing suppliers, build in a bigger safety stock buffer, identify new and alternative transport routes for suppliers, and find alternative channels to market.

Developing alternative supply chains against growing global tensions has become increasingly important. Trends, such as nationalism and protectionism – along with consumer pressure for greener, low-mileage supply chains – also create a favourable political and social climate for localising routes to market, and it is really starting to hit home. According to the our Global Risk report, 50% of respondents have regionalised their supply chain and nearshored production.

The key is to assess supply chain risks in terms of dependency, quality, environmental and social impact, while importantly risk assessing for ‘abnormal events’ by looking at alternative sourcing, shortening supply chains where possible, and monitoring risk indicators.

Sadly, there are no simple solutions for weathering ongoing and forthcoming supply chain storms. As uncertainty is set to continue on an international scale, with businesses needing to prioritise sustainability and environmental issues, the case for resilient localised supply chains is stronger than ever.

Fraser Paget is Head of Supply Chain & Logistics in the Digital & Risk Advisory Services (DRAS) team at BDO LLP in the Midlands.

You can download a full copy of our Global Risk Landscape 2022 report here.