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Is Nearshoring a Solution for Current Supply Chain Issues?
Every time there is a supply chain disruption, the most common question in the manufacturing industry is how to mitigate risk. During the past two years supply chain resilience and flexibility have been a topic of conversation; companies are looking for viable solution to continue providing the best service to its customers while keeping profitability and low operating costs. When the pandemic hit, labor and capacity shortages arise, and economic and political conflicts appeared, supply chain management became a more interesting topic than ever before. Companies started analyzing the most cost-efficient solutions and create strategic plans to avoid disruptions of operations while creating competitive advantage.
With all these disruptions, manufacturing companies had the need to revaluate sourcing strategies. The main issue that everyone was facing is that products and raw materials were not being delivered when needed. That is why companies that used to offshore considered changing this strategy to make sure that their suppliers were capable to deliver the raw material on time and create more flexibility and visibility in the supply chain. Offshoring has been positive for both businesses and countries alike; it has created higher profit margins, granted opportunities for foreign countries to grow a specialized workforce, allowed companies to scale up sustainably, and diminished the administrative burden usually linked to growing operations. But, when borders closed, containers were not enough, and there were not truck drivers offshoring became a disadvantage for many.
According to a report by Yahoo Finance, 64% of North American manufacturers reported that they are likely to bring manufacturing production and sourcing back to the Americas. Latin America, specifically Mexico, is poised to profit the most from this developing trend. Managers see the need to diversify resources and create a more flexible and controllable supply chain in order to mitigate risk and reduce the impact of shocks and shortages. Mexico seems like a great opportunity to do so, the country has proved to have skilled workers, advance industry-specific technology, and experience in the field. Mexico has a strong presence in industries like aerospace, automotive, electronics, furniture/appliances and medical devices. Also, the location and labor cost will be benefits for American manufacturers who want to reconsider their sourcing strategy and current strategic relationships with suppliers.
On the other hand, when making sourcing decisions, manufacturers have to take into consideration that a strategy like nearshoring can damage long-term relationship with current suppliers. Also, they will need to invest money, time, and resources in creating the perfect supplier network; they must study quality, performance, and other important aspects before entering new contracts with new suppliers. Nearshoring can be the solution for many supply chain disruptions, but it depends on every manager if they are willing to change and restructure their sourcing strategy and how much are they willing to lose and invest in order to make it work.
Contributor: Paula Beltran
About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com
Sources
https://finance.yahoo.com/news/nearshoring-could-be-the-answer-to-americas-logistics-problems-175720272.html
https://info.fusionww.com/blog/nearshoring-a-strategic-response-to-the-current-supply-chain-model