Strategies to Manage Supply Chain Disruptions: Nearshoring

distribution warehouse forklift tablet man 

April 3, 2024By Will Quinn | Global Director of Strategy, Infor WMS

As leaders in the supply chain industry, you know the complexities and risks involved in sourcing and distribution. Natural disasters, geopolitical tensions and cyber threats are just a few disruption possibilities that I highlighted in my previous blog. Nearshoring presents a way to mitigate these supply chain risks by bringing production home or within regional markets, enhancing flexibility, responsiveness, and supply chain resilience. Join us as we explore the advantages of nearshoring that will help create resilient supply chains and overcome supply chain challenges.

Nearshoring has become a viable option compared to offshoring methods. It provides benefits that are significant in today's fast-paced and competitive business environment.

One key benefit of nearshoring is the decrease in lead times. By situating manufacturing facilities closer to distribution centers and end markets, companies can optimize transportation routes and procedures for product delivery.

Reducing lead times helps keep customers happy by ensuring orders are fulfilled on time, which also boosts the flexibility and resilience of the supply chain. Furthermore, nearshoring plays a role in enhancing supply chain visibility, a factor in effective supply chain management. Proximity to production sites allows companies to monitor production progress closely, maintain quality standards, and manage inventory levels effectively. This increased visibility enables better demand forecasts, improved inventory control, and early identification and resolution of potential disruptions in the supply chain.

Cost reduction is another advantage of nearshoring, although the actual amount saved can vary based on factors like labor costs, transportation expenses, and import/export tariffs. While nearshoring may not always result in higher cost reductions vs. offshoring to low-cost countries, it still offers financial benefits. For instance, reduced transportation costs due to distances traveled, lower customs fees for trade, and potentially lower labor expenses in nearby locations can all help optimize overall company costs.

Additionally, nearshoring is essential for managing supply chain risks. By operating in countries other than far-flung locations, businesses can reduce exposure to risks related to long-distance shipping, such as delays in transit, transport bottlenecks, and uncertainties stemming from geopolitical issues.

The improved stability of operations and simplification of the supply chain contribute to supply chain resilience, ensuring smooth and reliable operations and reliability that can overcome supply chain challenges.

Schneider Electric, a key player in automation and energy management, is a notable example of the success of nearshoring. The company's strategic decision to expand its manufacturing presence in North America by establishing factories in Texas and Mexico highlights the advantages of nearshoring in boosting supply chain agility and responsiveness. By manufacturing goods to their intended markets, Schneider Electric optimizes transportation routes, reduces delivery times, and enhances overall supply chain efficiency.

Another example of a company that successfully employed a nearshoring strategy is Triumph Motorcycles, who has transformed their business with Infor Distribution software. A team of Infor consultants with years of experience in the Distribution industry addressed a key challenge of Triumph by recommending nearshoring. This strategy allowed Triumph customers (motorcycle riders) to customize their bikes up to seven days prior to delivery by opening a shop in nearby UK.

The trend towards nearshoring is not exclusive to Schneider Electric and Triumph Motorcycles. This is also evident in moves made by other industry leaders. Companies such as Yazaki, Foxconn, Panasonic, LG Electronics, Samsung, Intel, Tesla, General Motors, Ford Motor Co., Honeywell, Siemens, ABB and Eaton have shifted their operations. They are moving from distant manufacturing centers like China to nearby locations like Mexico. This strategic transition highlights the increasing focus on cost savings, supply chain flexibility, and supply chain risk management in today's business landscape.

Stay tuned for the next installment of our Strategies to Mitigate Supply Chain Disruptions blog series. We will explore another aspect of ensuring supply chain resilience: Creating Redundancy in Your Supply Chain.

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