In the past few years, strategies such as nearshoring and reshoring have grown in popularity.
By reducing dependence on suppliers and manufacturers who are on another continent, businesses are realizing incredible benefits in terms of a smaller carbon footprint, improved supply chain resilience, and many others. In fact, this realization has even driven a push toward building more robust regional ecosystems.
However, no matter whether you are nearshoring, reshoring or building a new regional ecosystem, it’s not always easy to forge new supplier partnerships. In fact, you certainly take a big, hopefully calculated, risk when you drop one supplier for another.
For this reason, we have compiled our top 5 sourcing tips for initiating a nearshoring or reshoring strategy.
A Few Sourcing Tips for Your Nearshoring and Reshoring Strategy
As is the case with any big logistical changes, it is crucial that businesses strive to ensure a smooth transition when implementing a nearshoring or reshoring strategy. Below are a few of the things we believe to be most critical to keep in mind as you take those first steps toward better sustainability, resiliency and hidden cost-savings.
Consider Your Company’s Objectives and Goals
Before making any large transition, you need to first establish a solid overview of your company's objectives and goals. Moreover, you need to have an understanding of your supply chains' weaknesses and other pain points. If the transition is not due to trying to resolve pain points in your supply chain but rather simply an effort to further optimize your operations, what are the areas you are focused on?
With your main focus honed in on, what does that look like for your company in 2 years? How will it look in 5 years? How likely will your new potential partnerships in another country scale with you over the course of time?
Understand That There Will Likely Be Some Large Differences Between Partners
Logistics operations may be performed differently, in varying degrees, from one country to the next. What may be commonplace or expected in one country, may be rare just not done in another country.
For instance, the country may not have enough laborers available to deliver your goods on time and in full. If you’ve invested in said partnership, you may run into an inability to fulfill your customers’ orders due to capacity issues with your new supplier.
When this sort of misalignment plays out, it can have negative effects on more than just your bottom-line. Alignment between partners is a discussion that should be had before any contract is put in writing. Even if the potential partner has a good track record and history of satisfied partners and clients, compare their work with what you are going to require of them.
Consider the Cost
Consumers in the U.S. tend to have great pride in American manufacturing. In fact, many people will gladly pay more for a product that was made in the U.S.A. as compared to a similar product made in a country much further away. To some extent this is due to quality and quantity of material available in either place.
That being said, if your primary suppliers are in an Asian region currently, it may cost a bit more upfront to move your operations to a nearby country such as Mexico or a South American country. However, A product made in one of these nearby countries (as opposed to a country in Asia) decreases some of the stress on the environment and creates a less complicated supply chain. But consumers might not recognize this difference and may be unwilling to pay extra for the product in question.
For this reason, it’s critical that you crunch the numbers before starting your nearshoring strategy. This can make a big difference in terms of the supplier you eventually end up working with.
Move Quickly, Not Rashly
If you’ve been considering making this change for some amount of time now, you might be feeling the pressure to act quickly. While too much hesitation allows potentially good opportunities to pass you by, the same is true for acting too quickly.
Be sure to think through your supplier options carefully. Take as much time as you need with the process and ask lots of questions:
Where are the cost savings to bring in closer suppliers?
Does this transition have any positive impact for your regional customers?
If you cater to the international market, what kind of effect does this transition have on those customers?