Global supply chain strain and shortages, combined with geopolitical pressures, are pushing more US manufacturers to nearshoring. How do you determine if the benefits of relocating elements of your supply chain or creating a nearby mirror supply chain are worth the costs? And if nearshoring your strained manufacturing supply chain is the path you take, how do you execute it quickly while mitigating risk?
Considerations for switching to nearshoring
Nearshoring your currently offshored supply chain is a big change. It requires a thorough examination of your capital capacity for building new infrastructure, and accounting for what to do with the supply chain infrastructure you leave behind. Capital planning in this process requires precision, liquidity, and proper scenario planning for risk mitigation. Make sure your finance team has the data and tools it needs to complete this pivotal process.
The reason so many US companies have taken their manufacturing and supply chain operations overseas is the lower cost of labor. That will still be the case. On paper, labor vs. transportation may still show offshoring as favorable. What that may not account for are the inflated emergency costs incurred when your single-threaded supplier has issues, when port delays and international lead times ramp up in-transit inventory glut, or when new trade regulations spike costs overnight. Scenario planning can help understand the operational and financial impact of the outlier cases that are becoming more common every day.
Once you’ve determined that the benefits of changing are worth the costs, you need to go about planning and hiring an almost entirely new workforce in the location you choose. This is a heavy lift for your recruiting and training teams and will have a direct impact on your operations. Operating in a new country may mean encountering unfamiliar regulations and labor laws. Be aware before you decide to nearshore of the cost of building and maintaining this new workforce. If you don’t have an efficient, transparent way of planning for and communicating workforce changes between the finance and operations sides of your company, you may end up with a confused, inadequate nearshoring operation that costs you more than it saves.
Raw material availability
One of the factors in the currently strained supply chain environment is the availability of raw materials and the geopolitical repercussions of their origins. Silicon, for example, is a key component of semiconductors and is primarily sourced from the Xinjiang region of China, where allegations of human rights violations against the Uyghur minority population have triggered multiple sanctions and bans. If you are looking to nearshore your operation due to supply chain complications and strain, make sure that your raw material suppliers are accounted for. Nearshoring goods by manufacturing in Mexico is still complicated if your raw materials are in China and facing complicated government scrutiny. On the flip side, if you can nearshore your operations and source your raw materials from reliable locations less likely to face US trade hostility (often referred to as ally-shoring), you can avoid congested ports and lengthy customs procedures.
Nearshoring is not only an opportunity for your company to save on transport costs and reduce supply chain friction, but it is a prime chance to boost your company’s reputation when it comes to matters of ESG—especially the E. Reduced transport times mean reduced fuel, reduced emissions, reduced chances for chemical spills or pollution. Building a new manufacturing and supply chain operation in a nearby country is also a chance to refresh your supply network and examine it for sustainable, ethical practices and provide this transparency to your consumers.
Conducting a proper cost/benefit analysis for some of these points requires a depth of data transparency and insight that you may not currently have. Empower your organization to make data-driven decisions through platforms that give you the holistic insight, forecasting, and planning capabilities that you need. A platform like Anaplan can provide you with robust capital and labor planning capabilities while also giving you an eagle eye into your supply chain.
Other applications, such as Coupa Supply Chain, offer you network optimization by giving you access to supplier and sourcing data, including transportation and logistics costs.
Spaulding Ridge is not only an Anaplan premier partner and Coupa technology partner, experienced in fast, efficient implementations, but also a provider of cutting-edge ESG transparency and enablement solutions you can leverage to make the most out of the opportunity to maximize your company’s ESG reputation.
If you’re looking to optimize your manufacturing and supply chain operations through nearshoring, let Spaulding Ridge help you get there. Contact Joe Kontak or Kyle Rish to explore how you can start your nearshoring efforts with confidence.