4 Ways Nearshoring Can Benefit Your Business
The geopolitical climate coupled with the past several years of post-pandemic sourcing and logistics challenges has made it almost impossible for businesses not to reconsider manufacturing footprints. In response to these shifts and changing customer preferences, nearshoring has gained prominence as a cross-border trade strategy.
Supply chain nearshoring, a strategy intended to speed up supply chains by bringing products closer to customers, often mitigates delays and the costs associated with them. If you are exploring the idea of bringing your business's supply chain closer to home, here are some factors to consider.
1. Nearshoring makes your products more accessible.
Nearshoring involves relocating logistics operations--particularly manufacturing, service activities, and transportation--to countries or regions that are closer in proximity to your target markets, ensuring your goods don't end up stuck somewhere you can't access them when needed.
In the United States, this means Mexico and Canada, both a part of the United States-Mexico-Canada trade agreement or USMCA which was enacted to support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.
The advantages of this approach can include lower transportation costs, shorter lead times, improved supply chain agility, better quality control, and increased responsiveness to customer demands. Nearshoring helps companies mitigate risks associated with long and complex global supply chains while supporting local economies.
2. It can help mitigate risk.
As more businesses have begun nearshoring to diversify supply chains and shorten lead times, truck border crossing activity between the U.S. and Mexico has risen--more than 20 percent annually since the pandemic.
Part of the impetus behind this shift is that companies are seeing the savings garnered from manufacturing overseas offset by inventory sitting on ships or in seaports just amassing storage fees, not to mention the cost of products being unavailable to meet customer demand. Companies with U.S. target markets can put products on a truck in Mexico or Canada that can arrive at a final-mile distribution center within days, as opposed to weeks or even months.
Bringing supply chains closer to your target markets helps mitigate risks associated with global disruptions, such as natural disasters, political instability, or trade disputes. It also enables quicker response and recovery when faced with such unexpected challenges.
3. It can optimize partner collaboration.
Nearshoring often paves the way for companies to establish closer relationships with suppliers--literally and figuratively. Being in closer physical proximity means you are in the same, or similar time zones, making it easier to maintain regular communication with suppliers facilitating easier collaboration, better issue resolution, and faster response times.
In addition to the convenience afforded by reduced time zone differences, neighboring countries often share similar cultural values, business practices, and even languages. These cultural similarities can enhance communication, leading to smoother operations that create a solid foundation for a successful partnership.
4. It allows you to create a more responsive supply chain.
As company executives have begun recognizing the fragility of operating in a single global region, they are leveraging opportunities to create resiliency in their operations now, and for the future. If you desire the flexibility to react to the various demands of the end consumer, nearshoring is a strategy that facilitates that.
Let's say, for example, a product from a cosmetics line isn't moving as quickly as anticipated, so you decide to boost sales by offering gifts with purchases. Because nearshoring puts inventory closer to the point of sale, it can be more easily transitioned and delivered than a more remote facility. That flexibility to react to changing demand speeds up operations and optimizes inventory management capabilities.
Though lower in cost and closer to home, nearshoring supply chain operations is not without its challenges. Common areas of concern are border crossing delays and capacity issues, subpar infrastructure in emerging, rural, or less developed markets, and the challenge of securing skilled and qualified talent in nearshore locations.
To facilitate a smooth transition to nearshoring supply chains, companies often partner with a third-party logistics provider that is informed and experienced in matters of cross-border operations.
Reduced costs, increased speed to market, reduced risk, shorter transit times and closer proximity to the end consumer have companies turning to nearshoring. After all, the nearer your goods are to where you need them, the better, more agile, and cost-effective you can be in a landscape that greatly requires it.
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This article was written by Steve Sensing from Inc. and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
