Why Manufacturers Should Give Nearshoring a Test Drive

September 29, 2017

Around the world, the automotive industry has demonstrated the effectiveness of nearshoring. Automakers have moved operations closer to customer demand and seen lower supply chain costs.

It helps Mexico, for instance, to ship vehicles to the United States, South America and Central America at a competitive rate.

Now, other manufacturing sectors are following suit. Firms with significant freight costs are exploring opportunities with key commodity suppliers in countries that are closer to home.

Changing Times

Over the last 15 years or so, many companies moved their manufacturing operations to China due to labor costs that, at the time, were extremely competitive.

Now, as CNNMoney reports, “China’s labor costs are only 4 percent cheaper than those in the U.S. when productivity is factored in.” That means there’s no longer a compelling reason to pay higher supply chain costs for products made in China.

Due to this industry shift, manufacturers have more opportunity to source much closer to U.S. soil.

The Automotive Standard

When determining whether to pursue these kinds of workflow options, you must consider your organization’s end-to-end supply chain costs. Due to the automotive industry’s high freight and shipping costs, this sector was a viable candidate.

Manufacturers that supply the automobile industry are following that giant’s lead – including those in the plastics sector, metal fabricators and just about any company involved in that supply chain.

Think of anything on a car. A company supplying it is going to be moving closer to its biggest customers, creating ecosystems of manufacturing, distribution and services where they land.

Even moving from China to Mexico or other Latin American nations is a big step closer, leading to more time and money reductions in shipping.

For the auto industry, that helps not only lower the shipping weight – it also helps them operate more fuel-efficiently. That’s a timely concern, with auto makers thinking ahead about how they can comply with government-issued mileage regulations for 2020 and 2025.

Evaluate Your Supply Chain

More and more manufacturing and distribution companies serving North America and western Europe say they consider nearshoring a possible opportunity, reported SupplyChain247.com – up to 69 percent last year from 40 percent.

When evaluating whether to invest in it, challenge your supply chain leaders to do a value-stream analysis on the processes you use to conduct business globally.

Shipping costs are a big part of that equation, but as you evaluate your supply chain are there other factors to consider, including:

  • Quality;
  • Lead time;
  • Being closer to your suppliers; and
  • Increased likelihood of innovation when closer to customers.

Nearshoring even has positive implications for intellectual property, since the risk of having intellectual capital stolen is decreased, according to Rita Gunther McGrath in The Wall Street Journal. A diversified supply chain protects manufacturers’ interests in the event of a natural disaster causing delays in one location.

“Having the capability to manufacture close to where customers are located can also increase customer responsiveness and decrease turnaround times, making the supply chain more predictable,” she wrote.

There are many reasons manufacturers should look into nearshoring.

Don’t leave money on the table: Once you understand how and where to use nearshoring effectively, you can reap the associated earnings.

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