Not too long ago, offshoring the majority of operational activities was widely considered a wise and cost-effective choice. However, in today's evolving market, particularly in logistics, organizations are now expressing a willingness to consider reshoring or nearshoring. In fact, a recent RRD survey found that two-thirds (66%) of supply chain decision-makers said their organization is moving sourcing, manufacturing and fulfillment closer to customers and end markets. This strategic shift aims to enhance the resiliency and agility of their supply chains, reducing disruptions and improving overall cost-effectiveness.
In light of recent disruptions, supply chain leaders are increasingly recognizing the need to mitigate risks through diversification and proximity-based strategies. Hybrid models that blend nearshoring and offshoring provide a robust solution to address these concerns.
Freight transportation services were severely impacted by the COVID-19 pandemic, causing the cancellation of shipments, shortages of containers, and delays at ports. Additionally, labor shortages and increased energy costs further exacerbated the situation, creating an environment of uncertainty that deeply concerned supply chain executives. In the past, supply chains thrived on the foundation of certainty; we’ve since learned that relying on a single system or process can lead to vulnerability and uncertainty when unexpected events occur. By taking a hybrid approach that embraces nearshoring and offshoring – and by establishing backups and multiple pathways throughout the supply chain – businesses can enhance their overall preparedness and resilience.
Keeping the consumer at the forefront of decision-making
Customer demand for expedited delivery, commonly known as the "Amazon Effect," is driving a shift in supply chains. Despite an apparent easing of supply chain disruptions from the past few years, supply chain leaders remain apprehensive about their ability to meet customer expectations regarding delivery timelines. According to a recent RRD survey, more than nine out of 10 supply chain professionals (93%) identified on-time delivery as an important supply chain risk. By bringing manufacturing closer to end users, organizations are able to tighten delivery timeframes and better meet the demands of today’s customer.
For example, although the cost of manufacturing in parts of North America may be higher, the shorter shipping distance offers cost savings and minimizes the need for excessive inventory. Nearshoring also enables manufacturers to quickly respond to consumer demands for specific products or quantities without the need for extensive process modifications. As a result, it facilitates faster speed to market and quicker delivery times, benefiting the end consumer.
Advantages of a hybrid approach
The close proximity to a final pack-out facility combined with end-to-end supply chain visibility allows organizations to closely monitor production progress and manage inventory levels effectively. This enables better forecasting accuracy and optimized inventory management.
Regularly reviewing and assessing supply chains is crucial for businesses to be flexible. This allows them to switch suppliers, run backup supply chains if necessary, or change suppliers from different countries if local disruptions continue.
By adopting nearshoring practices in combination with offshoring sourcing, companies can leverage the advantages of proximity while maintaining flexibility in their manufacturing processes. This approach not only enhances their operational efficiency but also enables them to adapt to changing market demands and seize new opportunities in a timely and cost-conscious manner.
Nearshoring also offers an advantage for companies seeking to minimize their environmental impact and align with their corporate social responsibility (CSR) goals, as a considerable portion of global greenhouse gas emissions result from the production and distribution of traded goods consumed internationally.
In the early stages of the pandemic, sustainability concerns were in danger of being sidelined as companies prioritized their survival. Now that the initial shock has subsided, businesses have shifted their focus towards a "build back better" approach, placing significant emphasis on integrating a focus on sustainability throughout the hybrid supply chain. By minimizing the reliance on long-haul transportation methods like air or sea freight and creating carbon efficient local production bases, companies can significantly reduce their carbon footprint through nearshoring efforts. From the long-haul perspective, companies can also slow down certain ocean freight shipments, which can lead to substantial reductions in carbon emissions.
In terms of nearshoring, packaging also represents a major opportunity to reduce the supply chain’s carbon footprint. With shorter distances, products can be bulk packaged, optimizing space and reducing volume per unit, along with minimizing empty packing space from long-distance travel. In addition, with quicker transit from manufacturers to consumers, companies can lower the risk of packaging being damaged in long-distance transit and products needing to be repackaged or reworked due to changes in forecasted demand. By packaging products in or near the market they’re serving, close to the time of consumption, companies can reduce time-to-market, associated waste and react to demand in real-time. The close proximity to manufacturing sites also increases productivity and performance with the ability to conduct in-person quality checks and meet short-run volume requirements.
Embracing hybrid models for a balanced approach
As nearshoring may not be suitable for every organization in every situation due to various factors, an increasing number of businesses are turning to hybrid models and incorporating aspects of nearshoring when appropriate.
The hybrid approach effectively manages risks by avoiding the concentration of all operations or inventory in a single location. For example, with a hybrid model, companies can source their core product from Asia and then ship it in bulk to North America for configuration and packaging. By completing the product near the target market, companies can efficiently respond to market demands while minimizing inventory in transit and mitigating the risks of excess and obsolescence.
Looking ahead with resiliency in mind
Investing in supply chains to deliver enhanced resilience and agility is crucial in navigating the ever-changing landscape of global operations. The adoption of hybrid models offers organizations the opportunity to mitigate risks, meet customer expectations, and drive sustainable practices. By strategically diversifying operations, optimizing inventory management, and embracing regional sustainability initiatives, businesses can forge a path towards greater supply chain strength, adaptability and success in the dynamic market environment.