CSCMP's Supply Chain Quarterly
December 12, 2017
Supply Chain Executive Insight E-Newsletter
Each week the Supply Chain Executive Insight e-newsletter will include brief articles about developments that are often overlooked by other supply chain publications. We will present you with summaries of the latest research as well as new ideas on how to make your supply chain operations more effective. And we'll offer commentary that sheds light on what's happening in supply chains today.
Sign up now!

Most Read Articles

News from our sister publication
DC Velocity
Forward Thinking

Interest in nearshoring remains strong, but trend may be slowing

Comment
Many executives are attracted to the potential cost savings of moving production closer to the end market. But concerns about safety, security, and the availability of skilled labor in these locations are giving some pause.

While there's a lot to like about the practice of "nearshoring," or moving production nearer to its ultimate end market, the business analysis firm AlixPartners LLC says that companies need to be cautious before they rush back "home" (or closer to home).

A new study by the firm, which was based on a survey of 248 senior-level executives, found that nearshoring strategies continue to find favor. Many manufacturers and distributors based in North America and Western Europe have already shifted production from low-cost countries half a world away to locations closer to end consumers. Additionally, nearly half of the executives surveyed reported that they are likely to engage in nearshoring activities within the next one to three years.

Respondents said they believe that the biggest advantages of nearshoring are lower freight costs, improved speed to market, and closer proximity to customers. Those that are already engaging in nearshoring or are planning to nearshore production expect to see savings of 8.5 percent on average.

Yet the survey also showed signs that the nearshoring trend may already be slowing, according to the AlixPartners article "Strategic Manufacturing Sourcing Outlook: Promise and Challenges in Global Nearshoring." Only 21 percent of respondents said that where to source manufacturing was a greater concern for their companies now than it was last year.

Part of the slowdown may be due to increasing concerns about safety and security in top nearshoring locations such as Mexico, Northern Africa, and the Middle East, AlixPartners says. Interest in Mexico as a manufacturing location, for example, has dropped from a high of 49 percent in 2012 to 31 percent this year, with only 42 percent of North American respondents expecting to see an improvement in safety and security in that country.

Likewise, half of Western European respondents said they believe conditions will deteriorate for nearshoring locations in North Africa. However, they do expect safety and security to improve in Eastern Europe, which is by far the preferred nearshoring location for Western Europe.

Other challenges cited include the availability and cost of skilled labor, quality and consistency, local government regulations, and tax rates.

Overall, the decision about whether or not to nearshore production remains a complicated one, says AlixPartners. The decision by the central bank in China to devalue the yuan is just one example of the many factors at play. "Recent moves by China to devalue the yuan make already complex manufacturing-sourcing decisions all the more complicated," said Foster Finley, managing director of AlixPartners and head of the firm's operations practice in the Americas. "These actions prove, as do what I'll call the nuanced results in our survey, that the world of manufacturing and supply chains is in constant flux, and that in such a world, there's no substitute for deep, strategic, case-by-case analysis and tight project management."

Join the Discussion

After you comment, click Post. If you're not already logged in, you will be asked to log in or register.


Want more articles like this? Sign up for a free subscription to Supply Chain Executive Insight, a monthly e-newsletter that provides insights and commentary on supply chain trends and developments. Click here to subscribe.

We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter : Interest in nearshoring remains strong, but trend may be slowing "> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.

Want more articles like this? Subscribe to CSCMP's Supply Chain Quarterly.