The benefits of local sourcing
Local sourcing can not only be cost effective, it can help build community ties, says Liz Morrell
Local sourcing has been a growing trend recently, flying in the face of the benefits of international sourcing that many retailers have previously favoured.
Today it is a balance of both: international sourcing to provide the mass volume a retailer needs and local sourcing to add a point of difference, or to meet customers’ environmental and ethical demands for products sourced closer to home.
For grocers, local sourcing has become an established sales strategy with locally produced goods making up an increasing balance of their business.
But as much as customers may enjoy the idea of supporting local suppliers, it means little if there is a substantial price difference. Therefore in today’s climate, cost-effective local sourcing remains more important than ever.
Count the costs
Of course, local sourcing does offer obvious cost benefits in itself. Supply chains are generally shorter with local suppliers, which leads to greater certainty and predictability of delivery times - particularly for those working on a just-in-time basis. As such, delivery costs are also normally lower.
Local suppliers can also be more reactive during times of high demand when longer international lead times can make it harder to react. Emma Brooks, representation manager for the Chartered Institute of Purchasing & Supply (CIPS), says: “Local suppliers can act quickly, increasing speed to market, but also allow for some agility. During the bad weather over the past few weeks, local suppliers would have probably been better placed to help retailers stock up on hats, scarves and wellington boots than one halfway across the globe.”
Research released by the Institute of Grocery Distribution (IGD) in January shows that in food the demand for local product is continuing to grow despite the recession. Of those surveyed, 30% had bought locally produced food in the past month - double that in 2006.
Retailers have to make a decision regarding cost. “It is all about the cost difference of getting something locally that hasn’t been produced in such a cost-effective way versus those that have been flown in, say, from north Africa,” says Brian Templar, chairman of supply chain consultancy Davies & Robson.
Shoppers’ reasons for buying locally vary, according to the IGD report - with 57% purchasing local food because it was fresher and 54% wanting to support local producers and farmers - up from 29% in 2006.
Waitrose launched its regional and local food offer in 2001 and in the past year has increased its local produce range from 1,500 lines to 2,150 from more than 465 small producers.
Selling local also helps foster closer relationships with customers - particularly useful for those retailers that may have been accused of pushing out local retailers. Brooks says: “Promoting the use of local suppliers can result in good PR for an organisation, particularly if it is a large employer in an area, and demonstrates investment in the community.”
It also helps the retailer understand local preferences, which in itself can result in better sales. Paul Dover, local customer planning manager for Asda, which stocks more than 6,000 local products, says: “When we are out sourcing local products our core aim is to find product that customers recognise to be a local product.”
But it can also be about serving only niche markets. Dover cites the example of Jeff the Chef’s chicken Parmo - a Teesside equivalent to the post-pub kebab.
“We launched that in April in 15 stores but then took it down to seven stores because some shoppers didn’t know what it was. It’s now the fastest selling ready meal in those stores,” he says.
Waitrose local and regional product manager Tracey Marshall says: “Our customers tell us they want our shops to reflect their community and that they want to support small businesses from their region.” Despite the recession, sales are up 34% on the previous year and rising faster than ever, she says.
The perception that local goods are more expensive can be a myth, according to Dover. “Certain products may have a premium,” he says. “At the
top end we are trying to match Extra Special, but with the vast majority we will try to match Asda brand pricing and we also run price basket comparisons of our local products with everyone else’s.”
Co-operative Group places a strong emphasis on British-sourced goods and tries to match its UK fresh produce suppliers to their local distribution hubs. A Co-op spokesman says: “This ensures that, as far as possible, produce is sold in the regions in which it is grown.”
Choice of delivery
Yet even among the main grocers there are big differences in how local products are distributed through stores.
Some will make use of their hauliers to pick up local as well as national produce - sometimes taking it to a consolidation centre before it’s taken on to store, and sometimes taking it direct to store.
At Waitrose - where local is defined as being within 30 miles of a store - 68% of produce is delivered directly to shops by local producers.
At Asda, some of the retailer’s larger-range suppliers may deliver to store and some to depots. Some benefit from backhauling, in which their goods are collected by the retailer’s hauliers after they have dropped off deliveries, but more than a third of its 500 local suppliers deliver products through Asda’s nine local sourcing hubs. These hubs are all businesses in their own right and their managers perform the paperwork, negotiations and delivery of local products.
Dover says sales of local produce are growing fast, up 50% in 2008/09 and bigger than fish and cereal as a category. “We have gone beyond an emerging market,” he says.
Asda opened its first hub in 2002. “That was the beginning of us taking local sourcing seriously,” says Dover. The hub owners consolidate products from local suppliers and then send it via vans to the local stores.
The hubs also allow the flexibility of very localised supply - such as in the case of the chicken Parmo dish. “If that was going through a depot we wouldn’t be able to do just those seven stores and there are several products around the UK that we wouldn’t be able to put through a normal supply chain structure,” says Dover.
Because of each hub’s autonomous status from the rest of the Asda business the system is not without its own challenges, but Dover insists the structure works well. “The hub network seems healthy and it works,” he says.
Dover adds that suppliers can also learn and grow more cost-efficient with the help of Asda. “We are always trying to strip out costs for them. We try to coach our suppliers to upskill and educate them and to allow these people to buy in as savvy a way as we, as a business, do,” says Dover.
Casting the net
The internet has also opened up new markets for local suppliers. Brooks says: “The internet has allowed business-to-business operations to be available to the masses. There is no longer a need for costly systems to be implemented; supplier hubs can be set up on websites and are easily accessible.”
The same is true at Asda, which requires suppliers only to have an internet connection to receive orders and payments.
Local suppliers naturally require more hand holding, which can be an expense in its own right. So retailers such as Asda and Waitrose work closely with Britain’s Regional Food Groups and also hold “Meet the buyer” events for suppliers.
Marshall says: “Collaboration is the key to all our supplier relationships, and is especially important with smaller producers. We work closely with many companies prior to their product even hitting the shelf - for example, helping them achieve industry technical standards, or develop packaging.”
However, such hand holding also has its advantages. Brooks says: “Smaller suppliers are more agile and can often be very innovative. The proximity allows for close relationships to jointly develop the business and products, which could take more management but would reap rewards.”
There is no doubt that the recession has affected local sourcing strategies. But as retailers continue to look for closer and more flexible supplier relationships, local sourcing can certainly deliver in many circumstances.