icon20 Mar, 2023
Nearshoring: A Breakdown on the Why’s and How’s
Over the past decade, nearshoring has gained traction as a viable supply chain option. Supply chain issues during the pandemic further cemented companies’ desire to use suppliers closer to home to build a more resilient supply chain.
But what is nearshoring, how can companies achieve it, and why would they want to? Read on to learn more.
What is Nearshoring?
The term nearshoring refers to bringing business operations like manufacturing or warehousing to a nearby country. Outsourcing is often a big part of nearshoring strategies.
The terms nearshoring and reshoring are sometimes used interchangeably, but that’s not necessarily accurate. Nearshoring refers to partnering with suppliers and service providers in countries close by, whereas reshoring indicates that the company is bringing operations back to its region or country.
Nearshoring investments have been growing over the past several years, even before the pandemic, with big companies like Mattel investing huge amounts of resources into bringing their supply chain closer to home. As more companies have brought their manufacturing back West, warehouses and other logistics waypoints are in high demand in areas like Mexico to account for those companies’ logistics needs.
Why Do Companies Turn to Nearshoring?
Companies the world over spent years and countless dollars taking operations global, moving manufacturing and other sourcing to less expensive countries. What would make them change their minds?
Here are just some of the reasons companies are looking to move closer to home.
Shorter Transit Times
One of the biggest reasons companies choose nearshoring is that it gets their product closer to home. This means shorter transit times, allowing them a little more inventory flexibility and the ability to get products in with shorter lead times.
As consumer expectations have changed dramatically over the past several years, companies have scrambled to find ways to meet those expectations. Shorter transit times make more room for that. Even when manufacturing and/or warehousing are nearshored, it means that the product can get to distribution points in the company’s home country faster.
Shipping Cost Savings
When your items are closer to their destination to start with, whether that destination is a warehouse in your country or the end customer, shipping is less expensive. Companies pay less for transport because fuel costs, miles, and the time it takes drivers to move goods are less. Nearshoring can often cut some of the complication out of shipping, with fewer transit methods being necessary to get the product to its final destination.
Shifting operations to a more trade-friendly country can also help companies escape paying high tariffs. New Chinese trade tariffs are making nearshoring a more appealing option for companies that based operations there previously.
Ease of Doing Business Closer to Home
When you’re working with suppliers or service providers on the other side of the world, the logistics of logistics can get a little hairy. Opposite time zones, totally different cultures, and other factors can make doing business across the globe more difficult.
Nearshoring allows companies to work with companies that are geographically similar and therefore in closer (or even the same) time zones, and cultures and customs tend to be more similar when countries are close together. These things simply make doing business a little easier.
It Adds Supply Chain Resilience
Since nearshoring puts operations closer to home, it allows for more supply chain agility, improving resilience. It’s a lot easier to bounce back from a setback when the lead time to fix it is shortened as is the case with nearshoring.
Many companies have homed in on resilience as a core value in their supply chains over the past decade, and with good reason. Resilient supply chains help companies provide better, more consistent service to their customers, winning more business and boosting the bottom line.
Nearshoring Reduces Environmental Impact
Carbon emissions have been top of mind for a lot of companies over the past couple of decades, and consumers and government regulations alike are pushing for sustainable manufacturing and logistics. Since transportation is one of the world’s top contributors to greenhouse gas emissions, nearshoring is a logical step to reduce emissions.
How Can Companies Begin Their Nearshoring Journey?
When companies are considering nearshoring, the first step on the journey is gaining knowledge. Learn about potential nearshoring countries, their regulations, trade agreements, import costs, and other pertinent information. Choosing the right location is a key part of successful nearshoring, and exploring the options is critical.
One of the most effective and efficient ways to kick off nearshoring operations is to hire a 3PL service provider. This allows companies to bring product closer to home without making huge capital investments in infrastructure and keeps companies from needing to recruit talent and a labor pool in an unfamiliar country. Oftentimes, the 3PL provider can handle most if not all of logistics operations in the nearshore country, which is important for manufacturers bringing operations to a nearby country.
Start by finding a few 3PL providers with service offerings and geographic capabilities that meet your needs. You may even be able to find a 3PL based in your country that has global connections to facilitate nearshore logistics. From there, interview potential 3PL partners to see how they would approach your operations, check in with references, and choose the company that best fits both your needs and your budget. Remember that the cheapest provider isn’t always the best one for your company if they can’t provide the services you need effectively.
Thinking of nearshoring and need some help with either warehousing or shipping options from a new location? Reach out to the team at NEWL. We can use our extensive logistics network to design customized logistics solutions to meet your company’s needs.