Excerpt from Inbound Logistics
Top 10 Reasons Companies are Near-Shoring
Companies are increasingly embracing “near-shoring” — returning their operations to bordering or neighboring countries — in order to leverage the benefits of proximity and the increased control that goes with it. These are the top reasons why organizations are near-shoring:
1. Increased Wage Stability. The rate of wage increases in overseas markets can be staggering at worst and unpredictable at best. Labor costs can represent nearly one-third of a product’s total cost, so the ability to reliably predict those costs, along with having access to a skilled workforce through beneficial trade agreements such as NAFTA, take much of the guesswork out of operations.
2. Enhanced Quality Control. Offshore operations often result in complexity when it comes to monitoring quality control and guarding a company’s intellectual property. Near-shoring allows for more vigilance and increased supervision in day-to-day operations.
3. Access to Facilities. Closer operations are easier for company personnel to get to, and cause fewer visa hassles.
4. Decreased Transit Times. With NAFTA’s elimination of tariffs on nearly all domestic products, goods can be transported with ease throughout North America, with simplified border clearance procedures helping to shorten transit times.
5. Tighter Inventory Control. By transferring production closer to the end user, companies can improve the time spent fulfilling orders and eliminate unnecessary middlemen that could threaten the security and reliability in foreign-based supply chains.
6. Real-Time Communication. Major time-zone differences often prevent ideal communication between managers in the U.S. and their overseas production facilities. Near-shoring facilitates real-time communication that can lead to a more efficient, satisfying working relationship.
7. Reduced Energy Costs. Shorter transit times require less fuel. With rising energy costs, being closer can represent serious cost savings.
8. Political and Environmental Stability. Natural disasters and political unrest indicate the fragility of foreign-based supply chains. Bringing operations closer can provide an enhanced sense of confidence and control.
9. Currency Valuations. Costs are already difficult enough to forecast, but add to that the transfer across currencies and the savings of setting up foreign operations begin to diminish.
10. Responsiveness. Today’s organizations demand flexibility and resilience when it comes to responding to customer demand and addressing problems that arise. Overseas supply chains tend to be more rigid in their responses, limiting the organization’s ability to respond as nimbly as they would like.