Supply chain organizations are increasingly recognizing the critical importance of effective raw material sourcing. Many are discovering that it demands a proactive approach that goes beyond a singular solution. Instead, a composite strategy that blends multiple sourcing and inventory practices offers the best short-to-midterm resilience.

Although onshoring and nearshoring are often valuable strategies, they can also inadvertently strip supply chains of necessary buffers during unforeseen disruptions. Likewise, overemphasis on cost models can overshadow comprehensive risk assessments related to single-country sourcing, extended networks and congested logistics. The root cause of many ongoing raw material shortages and production halts often traces back to sole-sourcing strategies for mission-critical items.

How top procurement teams optimize supply

To mitigate future oversight, a deliberate effort to multisource critical items is often useful, particularly when it is combined with varied inventory models. These strategies, best used in combination, offer procurement teams a balanced approach to risk:

• Strategic inventory buffers: While not a standalone solution, maintaining a targeted reservoir of raw materials or finished goods can serve as a short-term buffer against demand-side uncertainty. This requires sophisticated planning to avoid obsolescence and manage network constraints.

• Consignment approaches for strategic raw material sourcing: Using consignment inventory provides a secure supply of critical components without immediate capital outlay. Relationship-based agreements with defined minimums and volumes create mutual benefits, reducing outage costs.

• Diversified sourcing: When sourcing raw materials, aim to spread risk across multiple suppliers, distributors and even countries. While potentially incurring higher costs, it significantly limits supply chain vulnerability. A good rule of thumb suggests no single supplier for a critical raw material should exceed 80% of total requirements.

• Localized sourcing: Gradually increasing purchases from domestic providers helps cultivate more flexible and responsive supply sources. Though not always the cheapest, sourcing raw materials locally offers significant lead-time advantages, boosting throughput and mitigating logistical delays. This represents a foundational step towards reshoring.

• Leveraging distributors: Tapping distributors as secondary or flexible supply sources offers immediate benefits through their extensive knowledge of international commerce, prebuilt supply chains and inventory. Strategic partnerships with distributors quickly enhance source diversity.

The business case for expert sourcing

Justifying these crucial shifts requires a clear return on investment and a compelling business case for finance and senior leadership. Procurement professionals must frame new strategies not merely in terms of immediate price, but by emphasizing reduced risk, improved security of raw material supply and long-term cost stability. These benefits are vital for overall business continuity and sustained profitability in an unpredictable world.

Building raw material resilience

Recent global challenges have unequivocally exposed the flaws in sole-sourced and offshored supply chain models. The supply chain community must now evolve a new best practice that embeds a robust risk management framework for sourcing raw materials. This involves proactively identifying supply chain risks; partnering with multiple, globally diverse providers; and thoughtfully exploring local manufacturing and varied inventory storage opportunities. 

Gain expertise and learn how to justify long-term supply stability with the ASCM Supplier Relationship Management Certificate.

Editor's note: This article has been updated to reflect the current supply chain landscape. The original publication date was November 2021.