Supply Chain Demands Drive New Surge of Reshoring and Near-Shoring
As the advantages continue to erode for U.S. manufacturers operating in low-cost countries, interest in reshoring and near-shoring continues to climb—this is especially true in the age of Covid-19, with the pandemic’s near-crippling impacts on supply chains, including logistics and distribution.
According to the 2021 Thomas State of North American Manufacturing Report, 83% of manufacturers indicated they were “likely” to “extremely likely” to reshore, up from 54% in the 2020 survey.
Moving back to the U.S. or near-shore destinations such as Mexico, Canada, or Costa Rica have distinct advantages—most notably shorter and easier-to-manage supply chains, improved communication, and reduced probability for disruption. When done carefully, reshoring or nearshoring can deliver enough improved efficiencies (and hence lower operational costs) to compete with low-cost countries such as China.
However, establishing a new supply chain—even in the U.S.—can be expensive and challenging. To be competitive and add value to their supply chain, logistics providers must contribute their own improved efficiencies and cost reductions to make the supply chain as agile and competitive as possible.
“The traditional elongated, global supply chain is its own worst enemy,” notes Michael Gravier, associate professor of marketing and supply chain management at Bryant University. “It’s too slow to react to the needs of customers, which means more margins must be covered by the landed cost at the end.”
An Evolving Supply Chain
All the providers in a nearshore or onshore supply chain must work together to fully understand how they need to interact to create the most efficient and cost-effective process together—this includes logistics and distribution. Below are several investments and improvements manufacturers can make to add value to nearshore or reshore supply chains.
- Embrace and invest in Internet of Things (IoT) technologies—especially robotics and automation—that will close the competitive gap for companies with low-cost countries and will cover worker shortages and allow workers to be more productive.
- By eliminating the big costs of air or ocean international freight, being nearshore or onshore gives manufacturers more competitive options for shipping.
- Utilize lean methodologies and IoT technologies to make operations as agile and efficient as possible, especially for responding to customer preferences and trends.
- Use simulation models and digital twins to map all value streams and determine optimum shipping routes that can be adjusted in real time as needed.
- Create regional distribution centers in smaller population centers to facilitate more efficient operations, including just-in-time inventory management and last-mile delivery.
- Blockchain technology streamlines distribution transactions by eliminating manual paperwork and providing complete transparency for each products’ journey through the supply chain. Blockchain data is encrypted for extra security.
- Artificial intelligence (AI) and predictive analytics can improve operational systems in real time by analyzing data and making changes in real time to optimize efficiency and workflow.
- Get involved in industry trade associations to share information about how to identify “pre-competitive” challenges and identify the best path forward for their supply chains. For example, labor is a top issue “Businesses can join with their trade associations to identify parts of the country that might provide fertile ground for manufacturing operations, then work to develop and promote local education systems to generate a supply of trained and skilled workers,” says Dan Varroney, founder of Potomac Core Consulting.
Experts advise not to burn bridges—instead, maintain relationships with former vendors. As business models shift, there is often a tendency to “break ties with specialty partners who are better equipped to handle certain types of orders,” indicates Allen Jacques, industry thought leader with Kinaxis. “Though there are high-performing North American suppliers, it’s possible that companies end up with partners less suited for their unique manufacturing needs.”
Part of any reshoring and homeshoring strategy is to continually seek out and evaluate new sources of logistics and distribution that have the same vision and are not reluctant to innovate when needed. Staying open-minded to new distributors or new ideas is another way to strengthen agility.
“Continuity of supply is currently replacing cost in today’s threatening world,” says Rich Weissman, a practitioner turned college professor with more than twenty-five years of experience in all aspects of supply chain management. “Buyers who may have engaged with offshore suppliers searching for labor and materials savings in a low-cost-at-all-cost sourcing mentality are now looking for the safer haven of more local suppliers, knowing that their unit costs may be going up. These new suppliers need not be in the local industrial park but within a more friendly and accessible region. And in some cases, companies are reestablishing their own manufacturing capabilities, creating a more vertical business approach.”
The growing demand from consumers in recent years has been more flexibility from manufacturers. Reshoring, and the restructuring of processes, is a driver for businesses to meet and get ahead of consumer demand.