In order to optimize operations and stay competitive, companies are constantly required to explore new strategies within their supply chain. One such strategy gaining popularity is nearshoring, a practice where a company partners with suppliers, manufacturers and other supply chain stakeholders located in a neighboring or nearby country. According to Capterra research, 74% of SMB supply chain professionals say they’re looking to nearshore suppliers.
As more brands choose nearshoring to take advantage of its many benefits, this blog provides an understanding of what it is, the reasons why businesses are increasingly opting for geographical proximity in their supplier relationships, and how to redesign your supply chain management strategy for nearshoring.
Understanding Nearshoring: A Definition
As we already explained, nearshoring is when a brand chooses to work with a supplier that’s located in a nearby country. Unlike offshoring, which involves working with suppliers in distant, often overseas locations, nearshoring allows companies to leverage geographical proximity to achieve various advantages.
For a brand located in the United States, nearshoring might involve them working with a supplier based in Mexico or Canada, versus China or a country in the European Union (EU). There are three main reasons why a business might choose this route. These are:
- Geographical Closeness: Nearshoring revolves around collaborating with nations that share borders or are geographically close. This proximity facilitates cost-effective communication, travel, and coordination, which enhances the overall efficiency of your global supply chain.
- Cultural and Time Zone Affinities: Nearshoring destinations are often chosen due to shared culture, language, and similar time zones. This similarity minimizes communication barriers and streamlines collaboration between the brand and its supplier.
- Skilled Workforce: Nearshore locations typically offer access to skilled workers with expertise in the relevant industry. This ensures that companies can maintain quality control while benefiting from the cost savings associated with a nearby supplier.
Supply Chain Benefits of Nearshoring
There are many supply chain advantages to nearshoring. These include:
Reduced Costs
Nearshoring can lead to cost savings in various ways. While lower labor costs are one draw, other factors contribute to cost reduction as well. These include lower transportation expenses, reduced lead times, and minimized inventory carrying costs.
Improved Communication and Collaboration
Geographical proximity and cultural affinity lead to better communication and collaboration between the brand and the nearshore supplier. This facilitates real-time interactions, faster decision-making, and enhanced problem-solving.
Faster Lead Times
Nearshoring shortens supply chain lead times, resulting in faster delivery of goods and services. Reduced transit times and simplified logistics contribute to meeting customer demands more efficiently.
Risk Mitigation
Nearshoring helps diversify supply chain risks by reducing dependence on a single location. Natural disasters, geopolitical uncertainties, and other disruptions are better managed when production is spread across multiple neighboring countries.
Flexibility and Agility
Proximity allows for more frequent visits and in-person meetings if needed, promoting a better understanding of each other’s processes and needs. This enhances the ability to adapt to changing market conditions and implement modifications quickly.
Sustainability and Environmental Impact
Shorter transportation distances in nearshoring contribute to a lower carbon footprint, aligning with environmentally sustainable practices and corporate social responsibility goals.
Redesigning Your Nearshore Supply Chain Strategy
As brands make the strategic decision to move production closer to home, they must redesign their supply chain to accommodate the logistical and operational changes. For instance, a business will need to reassess sourcing strategies, transportation networks, inventory management, and distribution channels to optimize the efficiency of shorter global supply chains. This is necessary to ensure the brand not only reaps the benefits of reduced lead times and enhanced collaboration but also successfully navigates the complexities of adapting to a more localized production model.
A key element that brands must optimize after they move production closer to home is their purchase order (PO) process. Let’s take a look at how the PO process can become more complex after choosing a nearshoring partner. Since nearshoring often leads to adjustments in lead times and production schedules, brands need to accurately factor in revised timelines when creating POs to ensure the timely delivery of goods. Similarly, they may need to adjust PO quantities to maintain optimal stock levels and prevent shortages or overstock situations.
Other new complexities they may face in their supply chains strategy include:
- Regulatory Compliance: Nearshoring involves dealing with a new set of regulations, customs procedures, and compliance requirements in the destination country. Brands must ensure that their purchase orders adhere to these regulations, including documentation, labeling, and product certifications.
- Currency and Payment Challenges: Dealing with different currencies and potentially fluctuating exchange rates can complicate the financial aspect of purchase orders. Brands may need to navigate currency conversion, international payment methods, and foreign exchange risk.
- Logistics and Transportation: Nearshoring might involve different transportation modes, routes, and carriers. Purchase orders need to include updated logistics details to ensure efficient movement of goods.
To navigate new complexities after nearshoring, brands should prioritize comprehensive planning, effective communication, and thorough documentation. Investing in a robust purchase order management system can help streamline the PO process and ensure a successful transition.
Intelligent PO management software provides a centralized platform to streamline and automate the PO process, aiding brands in overcoming the complexities associated with working with nearshore partners. Using PO software, global supply chain teams can:
- Simplify how they collaborate with access to the status of their PO and all relevant documentation in one central location.
- Boost efficiency with automated workflows and real-time communication, solving logistics and supplier relationship challenges.
- Track and measure supplier performance against KPIs such as responsiveness and on-time delivery rates.
- Enhance global supply chain visibility and anticipate delays based on historical and current data. This enables them to see around corners for at-risk orders and better ensure optimal stock levels.
Optimizing Your Nearshore Supply Chain Partners
The decision to nearshore production is a strategic move that offers numerous benefits to brands seeking to optimize their supply chain and operational efficiency. As companies establish new nearshore relationships, they must be prepared to navigate a dynamic landscape of geopolitical nuances, regulatory intricacies, and cultural diversities. If they do, they will unlock the full potential of nearshoring while mitigating potential pitfalls.
Ultimately, the rewards of nearshoring are substantial – from streamlined logistics and faster lead times to a more agile and responsive global supply chain. By embracing the challenges and opportunities that come with nearshoring, brands position themselves for sustainable growth, competitive advantage, and success in an ever-evolving global marketplace.
Contact our team today to learn more about how Anvyl can help brands optimize their supply chain strategy as they move production nearshore.
