Supply Chain: Manufacturers Begin Reversing Supply-Chain Strategies from Off-Shore to Near-Shore

Near-shoring is a logistics strategy of keeping product manufacturing operations close to or within the country where the product will be sold.  It represents a reversal of thinking after years of shifting manufacturing and assembly operations into countries with low labor costs, even though the manufacturing may occur thousands of miles away from the ultimate consumer of the product.  This reversal represents an interesting shift in the flow of the supply chain.

For goods sold in the Americas, near-shoring represents a shift of manufacturing activities away from China and the Pacific Rim back to North and South America.  Automation and more competitive labor wages in the Americas are making a near-shore approach more attractive, and there are significant other advantages to having the manufacturing located closer to the consumers.  But this shift away from off-shoring may not cause manufacturing operations in emerging countries to be shut down.  Product demand is also growing rapidly in emerging countries and both North American and local companies in these regions are expected to apply near-shore strategy for producing goods for those regions.

A recent report by IDC Manufacturing Insights finds that interest in near-shoring has more than tripled since 2010.  The main reasons for the shift to a near-shore strategy are that businesses what to improve their service levels by bringing their production closer to demand (77 percent) and to improve their control over quality and intellectual property (55 percent).

When manufacturing is closer to the customer, businesses find that they can be more responsive to customers, achieve greater flexibility in operations, and better control the manufacturing and the supply chain.  Businesses that have adopted a near-shore strategy find that they’re able to reduce lead times (71 percent), improve planning (71 percent), improve fulfillment (68 percent), and improve post-sales and returns capabilities (66 percent).

Ken Rankin, director of high-tech segment marketing at UPS, said that “what bubbled to the top is that companies are facing more intense global competition and so are looking for a way to differentiate themselves.”

Other results from the IDC report found that:

• 39 percent of companies say that they’re redesigning their supply chain to be more customer-centric.  That’s expected to grow to 44 percent over the next two years.
• Two-thirds of high-tech executives have seen increased growth for their products in emerging markets and have correspondingly increased their presence in those markets
• 80 percent of North American companies have a presence in emerging markets