Posted by Bill Denbigh | June 17, 2021
Supply chain leaders over the last 18 months have dealt with issues they never had to even consider before the pandemic hit. Agility or resilience is now the watchword of supply chain design. Thus, many have started to look at their overwrought and brittle supply chain with nodes across the world with a much more concerned eye.
At Tecsys, we have been working with supply chain leaders for more than 30 years and increasingly we are hearing talk of reshoring parts or all of the supply chain. Back in the days of supply chain certainty, moving your manufacturing and early-stage distribution overseas was a good financial plan. However, that’s not necessarily the case in today’s world.
I thought it would be interesting to review what reshoring is and the reasons why organizations are reshoring their supply chains. Let’s break it down:
An article in SupplyChainDive explained it best, “Reshoring is the process of bringing manufacturing and part or all of the supply chain back to the home country from a foreign country. Nearshoring is a similar process, but refers to a location near the home country. In the case of U.S. businesses, nearshoring most often means sourcing from or manufacturing in a nearby country like Canada or Mexico.”
The lack of quality and certainty of an offshore supply chain means your organization must build extra time and inventory into your plans. You should investigate whether these “extras” could be removed if your supply chain was tighter and closer. What would be the benefit or harm of making this change?
With an offshore supply chain, you typically must rely on local distribution to get the goods to your customer as opposed to using all nodes of the supply chain for fulfillment. The increasing pressure around speed of delivery and rising costs associated with last mile logistics makes reshoring your supply chain an attractive strategy in order to gain more fulfillment flexibility and speed. You should examine using earlier parts of your supply chain to drop-ship or pre-build customer orders, thereby, reducing your cost and time to the customer.
When manufacturing production and sourcing are overseas, this creates longer lead times and less control of your supply chain. You don’t have the agility to rapidly change plans and respond to external market conditions. Will this factor simply drive the need to shorten the supply chain? For many organizations the answer is “possibly today, but probably in the future.”
The actual cost of an offshore supply chain is becoming more clear and starting to be realized as a lot higher than originally perceived for most organizations. There are several reasons for this, such as the reduced importance of labor due to automation (in some industries) along with the changing cost of doing business in developing countries. However, don’t make the mistake of focusing your efforts on price alone. You need to look at your entire supply chain and spend time evaluating which processes you should offshore and which ones you shouldn’t.
The Journal of Operations Management reported that investors and the stock market all saw a move to reshoring as a positive thing and companies announcing a reshoring project saw a bump in their stock prices based on the news. Therefore, I am sure we’ll continue to see a lot of discussion around reshoring and nearshoring.
Keep in mind that to properly manage your supply chain risk in the environments where you operate, your efficiency needs to be wisely balanced with responsiveness. And the balance between the two is always evolving as that environment changes.
Supply chain movements are crisscrossing more than ever and it’s not a simply yes/no answer when deciding if reshoring your supply chain is right for your business. But with the right approach to process with effective systems underpinning your operations, you can achieve growth and long-term success.
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