In the past year, tumultuous world events have repeatedly triggered disruption of the global supply chain, causing many to wonder whether the current emphasis on Just In Time inventory practices has gone too far. In their recent New York Times article (June 1, 2021), Peter Goodman and Niraj Chokshi state, “As the pandemic has hampered factory operations and sown chaos in global shipping, many economies around the world have been bedeviled by shortages of a vast range of goods — from electronics to lumber to clothing. In a time of extraordinary upheaval in the global economy, Just In Time is running late.”
Now is the perfect time for businesses of all types to rethink their approach to supply chain sustainability. This is particularly true in the food and beverage industry, where the concept of sustainability (as defined in the 1987 Brundtland Commission Report) requires the ability to “meet the needs of the present without compromising the ability of future generations to meet their own needs.” Under this definition, sustainable agriculture will need to feed nearly 10 billion people by 2050.
Unanticipated spikes in demand lead to more acute pressure on existing suppliers, and in some cases, result in higher usage of water and fertilizer, unethical labor practices, and unsustainable land use practices -- all of which are leading to dire consequences on an economic, environmental, and social level.
One potential solution to the ongoing global disruption is to shorten food supply chains. Creating a “short food supply chain” requires sourcing from local suppliers whenever possible.
- Helps the community you live in. When you source your food locally, you help to improve the economics of food suppliers in your own backyard, and enable your community to become more self-sufficient. Working with local vendors creates more jobs in the communities that buy their products. Norrköping, Sweden, for example, has pioneered an innovative model of bio-based economy, in which local farms and bakeries supply waste that goes into making biofuel, and a bio-refinery provides them in turn with organic fertilizer and energy required for the functioning of their factories and homes.
- Reduces environmental impact. The environmental consequences of sourcing goods from the other side of the world include unaccounted toxic waste, water pollution, loss of biodiversity, long-term damage to ecosystems, hazardous air emissions, and greenhouse gas emissions. Localized sourcing, or “on-shoring” as some people call it, is more sustainable for the environment, as well as for business. It leads to more responsible production and consumption of fuel and packaging, which has been demonstrated to reduce carbon footprint by 20-48%.
- Improves vendor diversity and inclusion. Businesses are currently motivated to improve the levels of diversity and inclusion in their supply base. Working with local vendors can help women and minority suppliers to rebalance inequalities in their own communities.
- Minimizes risk from macro factors. The events of 2020 were extreme, but this was certainly not the first time that extended supply chains have been disrupted or impacted by extenuating factors. As we emerge from this crisis, it is clear that the pattern of global supply chain disruption may become the norm, rather than the exception. Going forward, we can expect to see continued volatility due to environmental disasters, shortages of fuel, water, and other materials, labor restrictions, trade tariffs, and more. Sourcing locally can help to mitigate these factors.
- Streamlines business complexity and boosts efficiency. Global supply chains are enormously complex to coordinate, requiring complicated logistics with shipping, refrigeration, packaging and more. Localizing the supply chain minimizes much of the management complexity around this, and allows some of the process to be more easily automated, improving efficiency across the board.
- Reduces unnecessary costs. In times of volatility, businesses need to conserve their resources. Implementing innovative technology is a great way to do this. Now, with AI-driven platforms, businesses can track and measure the consequences of their supply chain decisions more accurately than ever before. Data analytics can bring new insights and identify opportunities for eliminating waste. The automation of business process associated with supply chain management can also result in significant cost savings.
- Minimizes exchange rate volatility. Volatile exchange rates make international procurement decisions more difficult, due to the risk of losing money from ongoing changes in the exchange rate. For many businesses, the events of the last year will be the “straw that broke the camel’s back.” They will say enough is enough -- it is simply not worth buying goods from 10,000 miles away just to save 4-5% on price, especially given the exchange rate risk.
As we emerge from the pandemic, most businesses are trying to simplify their processes in order to become more agile and resilient. Many will look closer to home for their vendors in order to minimize supply chain impacts and look for new technologies and innovative ways to save costs and become more efficient. Localizing the food supply chain is a great business move that offers significant economic, social and environmental benefits.
