Bringing the Supply Chain Home: Nearshoring on the Rise
Recently, nearshoring and reshoring have entered the common vernacular of supply chain professionals all across the U.S. These practices have gained tremendous popularity in the last few years, and for good reason. Bringing manufacturing closer to home offers a host of benefits to companies. Furthermore, nearshoring provides many environmental benefits to the world as a whole.
That being said, nearshoring is not a panacea. In fact, there are many hurdles which companies must consider before pursuing a nearshoring or reshoring strategy.
In this article, we will discuss the ins and outs of nearshoring. Also, we will highlight some of the challenges and benefits inherent in this practice.
Nearshoring and Reshoring: What’s the Difference?
The strategies of nearshoring and reshoring are separate but related terms. Each of them essentially refer to the physical location of various parts of a supply chain.
Nearshoring is the practice of partnering with suppliers, manufacturers, and other necessary entities within a supply chain that are located in countries near the company in question. For instance, a U.S. company may practice nearshoring by working with a supplier in Mexico, rather than one in China.
Reshoring, on the other hand, is the act of bringing manufacturing and production services back to the country or region in which the company originated. Case in point, a company centered in North Carolina might practice reshoring by working with manufacturers in Georgia.
What Is Driving the Trend Toward Nearshoring?
There are a number of factors contributing to the new interest in nearshoring. For our purposes, we will focus on the most relevant reasons why businesses are seeking out production facilities closer to home.
Global supply chains certainly have their benefits. In many cases, working with companies in faraway countries affords businesses lower costs of labor. However, when global disasters strike, upending the supply chain and making it nearly impossible to receive goods from these countries, costs can often skyrocket.
Working with suppliers in neighboring countries effectively sidesteps this issue. A serious issue affecting the world will often have less of an impact on prices of goods coming from Mexico than it would on prices of goods coming from Asia.
Initially, costs may be higher with a nearshoring strategy. But over time, companies tend to save money by employing such a method of production.
As we’ve seen over the past few years, global disasters can cause widespread disruptions across all industries. No one is immune to the effects of a catastrophic weather event or similar issue.
That being said, the closer companies are to their partners, the easier it is to pick up the pieces after a devastating event. Transporting goods a few hundred miles by truck is always going to be much easier than transporting goods a few thousand miles by boat or plane.
For these reasons, nearshoring can often lead to stronger resiliency across supply chains. This is especially true when natural disasters or pandemics threaten to disrupt the industry.
Decreased Environmental Impact
There are many different theories on just how bad the environmental crisis is. Some sources tell us that we only have a few decades to turn things around, others tell us that we only have a few years, and some sources even indicate that it’s already too late to avoid certain impacts on the environment.
Regardless of a company’s belief on the state of the environment, the world at large is demanding climate action. Some governments are offering incentives for companies to practice more sound environmental strategies, while others are insisting that companies create a smaller environmental footprint through strict legislation.
But beyond government intervention into these environmental considerations, the consumer must also be considered. Tons of shoppers now investigate the companies they choose to patronize. If they don’t like the environmental stance of the company in question, they will quickly take their business elsewhere.
By nearshoring or reshoring operations, businesses can easily demonstrate their commitment to the environment. There is less fuel and resources needed to coordinate facilities located in neighboring countries or regions. This means less of an impact on the environment and happier customers all around.
Initiating a Nearshoring Strategy
First, decide if a nearshoring or reshoring strategy is the right move for you. In all honesty, if your supply chain is functioning well with global partners, it may not make sense for you to bring your manufacturing back home (at least not right now). Instead, you may slowly begin to investigate some potential suppliers located closer to home, without fully cutting ties with your existing partnerships.
If, however, you are certain that nearshoring is the right strategy for your company, start as soon as possible. You should be prepared to frontload a few years of hard work to get your operations up and running.
Most importantly, you’ll want to first develop a shortlist of nearshoring companies you might wish to work with. Then, you should consider visiting these sites in person, if that is a possibility. Doing so may help to bring you further assurance that they are able to deliver on what they promise.
From there, be sure that you can legally work with your nearshoring partner. You don’t want to find out 5 months down the line that there are import or other restrictions that will cripple your operation.
Of course, there will be many other considerations that are specific to your industry. Our Redwood Mexico team is seeing significant growth in the number of companies exploring nearshoring options, and we have decades of cross-border and nearshoring experience. Reach out to Redwood Logistics today and learn how we can help you begin to take advantage of a nearshoring strategy that makes the most sense for your business.