Reimagining supply chain strategies for localisation | by Ndabeni Bagosi

Ndabeni BagosiThe benefits of strategic sourcing locally and globally cannot be over-simplified. They are both important and play a huge role in the development of the country. As a developing economy, South Africa is not spared by the current challenges of local and global sourcing. The recent rhetoric around protectionism that is in vogue in North America and some parts of Europe should be enough to alert supply chain practioners to the reality of localisation challenges.

While international sourcing is a good alternative – due to lower production and labor costs – domestic sourcing is still the better option here where the currency is volatile, unemployment is high, and the economy is not yet inclusive.

Why sourcing locally is a desirable supply chain strategy
Although global sourcing can appear to be a valid cost-savings tactic (costs of production are relatively cheaper overseas), if you factor in shipping costs, insurance, time at port, and inflexible ocean carrier costs), in the end the total cost of ownership (TCO) for international sourcing ends up being expensive. An added benefit of sourcing locally is that you can have production control oversight to ensure that all your suppliers meet timelines. Sourcing locally also enables you to have better control of your inventory stock which in turn helps you to manage your working capital requirements.

At national level, in a country with high unemployment rate like ours, sourcing locally furthermore provides many secondary benefits. A key one is that it stimulates growth and employment. The creation of much-needed jobs will not come from government institutions and large corporates. In fact, one can argue that these institutions are under pressure to lower their costs in order to survive. Therefore, the best alternative to create employment will be small and medium enterprises (SMEs). These enterprises are stimulated through sourcing locally.

A compelling case study for South Africa is how South Korea drove localisation after the Korean War in 1953. Today South Korea is one of the leading producers of a myriad of products that are consumed worldwide, such as those produced by Samsung.

We can emulate this example. To date, the South African government has put in place policies that are necessary for localisation, such as the Black Economic Empowerment Act, as well as many incentives schemes to manufacture locally. However, policy co-ordination and execution need to be improved to achieve better results.

The effects of protectionism
As mentioned above, for various socio-political reasons, one undeniable trend is the move by many countries back from a globalised economy towards increased protectionism. The challenge for supply chain in this context is to develop local supplies and chains to be more responsive to the needs of a local market. This can be done by partnering with small local enterprises, to drive innovation and co-develop new opportunities. chain 2364830 640. 100419

These opportunities will ensure the following in the local economy:
  • Create a conducive environment for entrepreneurs to thrive
  • Re-skilling of the work force
  • Job creation
  • Increased production and local consumption
  • Increased household earnings
In conclusion, localisation and inclusion initiatives are critical pillars, necessary to drive the South African economy. And the implementation of these initiatives will require co-ordination and speed by all stakeholders, including the private sector. For South Africa to stimulate the economy, localisation and inclusion should be at heart of policy implementation.

Ndabeni Bagosi is a Principal Associate at Bespoke CfSD Group and a thought Leader in supply chain management (SCM) and procurement - www.bespoke.co.za

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Posted on April 10, 2019