When it comes to outsourcing operations, nearshoring is becoming a better and better option for many companies. With rising labor costs in China and the problem with maintaining quality standards, as well as the desire to reduce transportation. Costs companies have started to reassess their manufacturing and offshoring strategies.
If you are unsure of what the differences are, we can explain. Offshoring involves shifting work to a foreign or distant country and/or company to production costs. Nearshoring, on the other hand, means sourcing manufacturing closer to The United States; to countries like Canada and Mexico. Many other nations in Central and South America like Argentina, Brazil, or El Salvador; and in the Caribbean like the Dominican Republic and the U.S. Virgin Islands are also used.
With offshoring, not offering the same cost benefits it once did, companies are moving production closer to home. According to an article published by Manufacturing Today, “companies like Apple, General Motors, General Electric, Microsoft, Caterpillar, and Ford have recognized that overseas offshoring is no longer the good deal it was, nor does it comport with today’s supply chain demands.”
Benefits of Nearshoring
Nearshoring has immediate benefits like cost cutting and also helps ensure higher quality products through better controls. Other advantages that are most talked about are the lower labor costs and access to skilled workers. This improves the entire process, including increased quality control, better inventory control, and easier to manage supply chain, better customer service, and an improved logistics network.
Wages have also become a primary factor for the decisions to use nearshoring operations. Wages in Mexico have been below the average pay for the same role in a Chinese factory since 2013, and the disparity continues to broaden. The wage gaps for other often used offshoring countries like Indian and the Philippines are also rising.
Con’s to Nearshoring
With nearshoring, there a few drawbacks. It is possible that contracting a nearshoring partner will involve higher costs initially than your current partner. Also, finding a good partner that is reliable and understands the challenges and specifics of your processes that relate to their logistics network can pose some challenges. However, these challenges can usually be offset by working with a respected and knowledgeable logistics partner.
You might overcome some of the language barriers with nearshoring, but many cultural nuances still need to be considered. These can include things such as hours in the work day, holidays, and cultural mores. Each of these can all have an impact on your business if not thoughtfully considered.
Ultimately, the benefits to nearshoring may be appealing, but moving your operations or supply base to nearshoring can bring some challenges. It will be important to look at all the facts of your supply chain and operations and work closely with your logistics partners to ensure a smooth transition.
Some Initial questions you will want to consider:
- What will the move cost regarding transportation and operations disruption?
- Will the new site be capable of meeting the rigorous production demands?
- What delays will you initially encounter?
- What are all of the laws and regulations for the new production site?
- What are some of the cultural nuances that you may face?
To find out more about nearshoring or any logistics questions you may have, contact us today!