In recent years, nearshoring has emerged as a popular strategy for companies looking to optimize their supply chains. They are responding to growing unpredictability and disruptions caused by events such as the COVID-19 pandemic.
Nearshoring is the practice of outsourcing manufacturing to a nearby country. By sourcing closer to home, companies can take advantage of lower labor and production costs, while benefiting from reduced transit times, improved oversight and easier communication with suppliers.
The U.S.-China trade war and COVID-19 pandemic highlighted the risk of relying too heavily on a single country or region for production and supply. American companies importing manufactured goods from China were hit particularly hard by recent events. Many were forced to find alternative sources of supply, which often meant paying higher prices or accepting lower-quality products. The trade war also resulted in delays at ports and customs, further complicating the end-to-end supply chain. And when factories in China shut down due to the pandemic, many companies found themselves unable to access the components and materials they needed to manufacture their products. Nearshoring offers a buffer against these “outlier” events.
Close-to-home sourcing can help to improve oversight and quality control. Over long distances, it can be challenging to monitor the quality of finished product or ensure that suppliers are meeting deadlines and specifications. With nearshoring, companies can more easily visit and maintain direct communication with key suppliers.
Sourcing closer to home can also help to improve speed to market. Goods produced in distance offshore locations can take weeks or even months to arrive at their final destination. By sourcing more locally, companies can reduce transit times and improve their competitiveness and profitability.
Nearshoring can also be an effective way to reduce overall supply chain expense. Many companies flocked to China in search of low wages, but the total cost of outsourcing tends to be much higher than expected, due to the complications of shipping goods over long distances.
Following are some key areas that can be transformed by the decision to nearshore.
Product development. Companies can work more closely with their suppliers and collaborate more effectively on product design and development. This can lead to faster prototyping and iteration cycles. Additionally, companies can take advantage of local expertise and resources for innovation and product differentiate.
Product strategy. Companies can benefit from more rapid response times to fluctuations in customer demand or market conditions. This can allow them to be more agile and flexible in their product strategy, and react more quickly to new opportunities or threats in the marketplace. Nearshoring can also help them to adapt products to meet the needs of specific regions or customer segments.
Go-to-market strategy. Companies can more effectively launch new products and time market entry to align with changes and trends in the marketplace. For example, if the holiday shopping season looks to be particularly promising, amplifying production may be easier with a nearshoring strategy in place. Furthermore, companies can ensure their products are meeting the needs of customers and are delivered to market with the highest possible quality.
With the challenges of managing a global supply chain becoming increasingly clear, nearshoring offers an attractive alternative that can help companies improve their competitive edge, unique value proposition and resilience in an uncertain world.
Patrick Ward is vice president of marketing at Rootstrap, a custom software development consultancy.
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