After decades of companies offshoring more and more of their goods and manufacturing to Asia, a new trend is catching steam: nearshoring. Companies looking to diversify and build up more safety in their supply chain have started to look closer to home (that is why we provide a LA warehousing solution).
The global supply crises following the COVID-19 pandemic further helped to spur on conversations about nearshoring. Many companies are reassessing their global supply chains and weighing different options for their manufacturing.
What is Nearshoring?
Nearshoring is the practice of partnering with suppliers, manufacturers, and other necessary supply chain operations closer to the company in need of the supplies and closer to the consumer.
For many European countries, nearshoring means looking towards the Baltic states, Eastern Europe, or the Balkan region. Nearshoring opportunities for American companies focus mostly on Mexico but also go farther south to places like Costa Rica and even Argentina.
Why Companies Choose Nearshoring
Nearshoring can limit the downsides of offshoring. Supply chain challenges following the global pandemic have increased awareness and sometimes even forced companies to rethink their geographical strategies. The rising tensions in global politics further drive the need to reevaluate offshoring strategies that might have been much more attractive a decade ago.
Nearshoring also increases the control you have on the entire process, can increase efficiency because of working in similar time zones and makes it less taxing to physically move between different locations.
Nearshoring Compared to Offshoring
There are many benefits of nearshoring compared to offshoring, most notably are faster response times and reduced risk in the supply chain. In general, nearshoring means having to manage less moving parts in the supply chain and managing these parts across shorter distances.
Better Response Time
This is reflected over the long term and day-to-day operations. First, closer or overlapping time zones allow for a more direct management style. Second, because nearshoring destinations are closer, they are also easier to visit, which can improve agility.
Reduced Risk
Keeping your operations closer also means you reduce the risk of potential problems in the supply chain. When your goods are moving shorter distances, there is a smaller chance of complications. Whether there’s a global crisis or not, keeping goods and manufacturing operations closer to the consumer provides the flexibility and confidence required to remain competitive.
As an additional benefit, navigating closer cultures can be easier than the culture in distant destinations. For example, Mexico is one of the most attractive locations for US companies due to various competitive advantages including geographical proximity, more stable free trade agreements than some Asian countries, less-volatile currency fluctuation than some other currencies and easier communications since the two countries are time-zoned aligned and more than 24 million people study English in Mexico. The cultural discrepancies tend to increase with distance, which means connecting with the workforce or finding the right location might be easier than it has been for offshoring companies.
Alternatives to Nearshoring to Diversify Globally
For most companies, a supply chain that looks like a straight line is no longer the ideal picture and a chain too easily broken. Increasing global tensions and compounding logistical challenges in recent years have forced many to further diversify globally. Aside from nearshoring, here are a few other strategies that can increase supply chain management efficiency:
Building up safety stock in local warehouses
Building a safety stock at local warehouses can increase a company’s control over their supplies. This eliminates the problems when the just-in-time economy is disrupted somewhere around the world and builds a buffer in the supply chain. Integrating local warehouses in your global diversifying efforts also allows you to take advantage of local labor rules and avoid union conflicts.
Our local warehouses in the United States serve most of the important ports of arrival in North America including Miami, Los Angeles, New York/New Jersey and Savannah. Our European warehouses in Poland and England strategically serve Europe. Integrating these warehouses in your supply chain strategy will decrease lead times.
Multisourcing
Multisourcing offers an alternative to nearshoring that helps increase diversification in the supply chain. By using several different sources in the supply chain, you don’t put all your eggs in one basket. An unforeseen crisis in one region can be solved by focusing on another region.
Additionally, using multiple suppliers can have cost benefits because it can create competition between sources. Negotiating better terms with these competing sources helps to keep overall costs lower.
Multisourcing is used together with nearshoring, as nearshoring helps to reap the benefits of multisourcing. It is often easier to find multiple sources within a smaller geographical range.
Nearshoring as the New Normal
Many other considerations, of course, will be specific to your industry, but nearshoring can be a viable solution to ensure efficient supply chain management. Contact your Worldwide Logistics Group representative for more information and to see if nearshoring is right for your company.