Localizing all or some of a supply chain can deliver critical environmental impacts through reduced greenhouse gas emissions. Communities also benefit from localization in numerous ways.- BY Gerald Donald

Bringing supply chains closer to home gives companies more control over their environmental footprint. Global supply chains are broad and deep. Without sophisticated advanced technology to track each supplier’s product lifecycle from resource extraction to manufacturing to delivery of goods, it is nearly impossible to know which suppliers follow sustainable practices. Though not without challenges, supply chain localization gives sourcing and procurement groups more control over environmental impacts. It can do this without affecting the quality of goods and services purchased and promoting social responsibility at the same time.

Choosing Greener Transportation

Supplier localization means businesses source materials, components, and finished goods from suppliers in a specific community or geographic region rather than internationally. It shortens the distance between producers and end users. A localized supply chain offers advantages like faster delivery times, increased supply chain responsiveness, and the ability to develop better relationships. It can also bring substantial environmental sustainability benefits, especially in reducing greenhouse gas emissions contributing to global warming.

One of the most significant benefits of supply chain localization is the reduction in emissions from transportation. According to the EPA, the transportation sector is the most significant contributor to U.S. greenhouse gas emissions at 29%. This includes trucks, cars, commercial aircraft, railroads, and other transportation sources. Medium- and heavy-duty trucks account for 23% of transportation emissions. Aircraft contributes 8%, rail is 2%, and ships and boats are 3%. International shipping use all these transportation modes, so a localized supply chain strategy requires fewer trucks, airplanes, ships, and trains.

Reducing energy consumption is another advantage of supply chain localization. While using fewer fuel-consuming transportation modes reduces the carbon footprint, so does the ability to optimize transportation routes to minimize fuel consumption. Localization gives a business more control over logistics, enabling shorter delivery distances. Reducing the distance from the point of sourcing to the final destination can significantly impact emissions.

Reducing Greenhouse Emissions Through Reshoring

Increased supply chain transparency can also contribute to a reduced carbon footprint. Localized supply chains are more accessible for monitoring. Procurement can include environmental sustainability requirements in RFPs, knowing it will be better able to monitor suppliers efficiently. In addition, U.S. local suppliers are subject to stricter environmental standards and regulations compared to many other countries.

Manufacturing provides a good example. Harry Moser, Founder and President of the Reshoring Initiative, told FreightWaves that reshoring manufacturing operations from international locations back to the U.S. can lower greenhouse gas emissions in two ways. One is avoiding emissions from shipping goods long distances. Another way is reducing production emissions. Production-related emissions are often higher in developing countries due to their dependence on coal for electricity production.

A Reshoring Initiative study found 32% of companies surveyed gave green consideration a top influence in reshoring decisions. This is related to ESG pillars. Increasing corporate consciousness of the climate crisis is driving companies to develop domestic supply chains, potentially cutting the global environmental impact by up to 25%. The Reshoring Initiative provides numerous resources to encourage companies to produce or source manufactured goods domestically.

Reducing the Polluting Power of Waste

There are other ways that supply chain localization can have a positive environmental impact. For example, waste can be better managed. Buyers cannot control waste produced by offshore suppliers, but they can minimize domestic waste through operational practices and the selection of local suppliers. After all, it is more likely a reuse and recycle program can be developed with local suppliers than foreign ones. This has the potential to directly benefit local communities, as municipal landfills account for 14.3% of total methane emissions and methane traps 80 times more heat in the atmosphere than carbon dioxide over 20 years. In addition, landfills disproportionately impact communities of color and low-income neighborhoods, so localizing suppliers gives procurement more opportunities to make a noticeable environmental impact by reducing landfill waste. Localized suppliers are also more able to partner in circular economy efforts. For example, developing an agreement with a local manufacturer to accept end-of-life products for reuse, refurbishing, remanufacturing, or recycling materials is much more likely with regional suppliers than with international suppliers. Utilizing local suppliers with a takeback and reuse program when products or materials reach end-of-use status can significantly reduce waste and reliance on foreign manufacturers.

Recognizing the Challenges

The reality is many companies cannot make their supply chains 100% local because needed materials or components are only manufactured or available overseas. For example, MIT Professor of Engineering and Director of the Center for Transportation and Logistics Yossi Sheffi said this about moving semiconductor chip manufacturing to the U.S. “The most challenging factor is the need to move the entire supply chain, not just the final manufacturing stages, but [also] sources of raw material, expert suppliers, leading equipment makers, etc. The manufacturing of any product, at scale and at competitive quality and prices, requires entire ecosystems, or clusters, of multiple companies, and it is a long-term Herculean effort to move everything.” Companies of all sizes and in multiple industries are impacted. For example, SMEs selling computer hardware could face the same hurdles as multinational companies. They either cannot reshore their manufacturing facilities for some reason, or there are no local suppliers to meet their needs. There is also the issue of labor costs, which, in some industries, like furniture and clothing, are significantly lower than in other countries. The desire to reduce environmental impacts sometimes faces significant barriers.

One Step at a Time

Localizing some or all of a supply chain can have measurable environmental and social impacts, and the two are closely linked. Localization can support diverse local businesses, reducing environmental impacts and improving the local economy and environment at the same time. It is a circular economy in and of itself. Though there are challenges, localization of any supply chain segments puts companies one step closer to going greener and better managing greenhouse gas emissions.