Near-shoring: the pros and cons

16 July 2013
There has been a huge migration to low-cost sourcing from Asia in recent years, as businesses aim to drive margins in a cost-conscious and highly-competitive global marketplace. But, more recently, the news agenda has swung with much talk in favour of near-shoring, so should we expect this to continue? When it comes to low-cost sourcing, the benefits are still available, but only for the right products. There are also, of course, risks that can sometimes outweigh the benefits and by focusing primarily on cost, resultant supply chains can lack transparency and become overly complex. It is, therefore, important that businesses assess their sourcing requirements on a one-by-one basis rather than following the trend and adopting a ‘one-size-fits-all’ approach, which may not be in the company’s best commercial interests. Evidently, there are many instances in which low-cost sourcing is the more viable and appropriate option. Where businesses have capital- or labour-intensive characteristics for example, it can make sense to offshore to a low-cost country where the cost of capital and labour is often cheaper. But there’s more to consider when deciding where to source from. It is important to start by understanding where the product is in its life cycle and to take a view on whether a longer supply chain can deal with shorter lead times or has the flexibility to react to customer requirements. After analysis of the wider supply chain considerations, such as logistics, manufacturing, design and development and transfer streams, it may be preferable to create a shorter supply chain. Near-shoring can bring benefits in a number of ways:
  • Greater flexibility to accommodate design changes.
  • Lower stock levels/shorter lead times - shipping what is needed rather than allowing for or anticipating demand.
  • Better response time to customer requirements, allowing for the latest thinking and technology.
  • Customer buy-in. Would a locally manufactured product sell better?
  • Closer proximity to the end market(s).
By taking a more holistic view and looking at the entire end-to-end process to set up their supply chain accordingly, businesses will be better placed to deliver optimum value to the customer and shareholders. ☛ Roy Williams is managing director at supply chain consultancy Vendigital
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