Nearshoring: A New Era for Resilience

Nearshoring: A New Era for Resilience

Nearshoring and reshoring have gained significant attention as effective ways for businesses to rethink operations while mitigating risk and increasing speed to markets to optimize operations. What are the benefits and challenges?

Nearshoring strategies can help de-risk supply chains and bring predictability and stability back to operations. However, companies that have spent years creating global, complex supply chains might be intimidated by the prospect of “undoing” all of this work and moving operations closer to home, which could be costly and time consuming.

Nearshoring comes with its own set of challenges including political and regulatory implications, infrastructure and logistics considerations, and risks associated with intellectual property and data security.

Costs are also a prime consideration. Upfront costs can be material and must be factored in when considering set up and supplier certifications.

Additionally, given the inevitably higher costs of the different inputs (such as labor) in nearshore territories, sourcing will almost always come at a higher base cost—especially for western organizations.

Depending on where the company is based, risks in the geopolitical landscape can also introduce new challenges, as we saw with Russia’s invasion of Ukraine, which impacted not only resource availability but also fuel costs, making it difficult for companies to reshore their operations. Companies must be mindful of political and geographic disruptions when nearshoring to remain secure and confident in their supplier relationships and supply chains.

Practical strategies

Choosing the right location is critical to the success of nearshoring operations. When selecting a location, companies must consider factors such as labor availability and costs, infrastructure, regulatory environment, and proximity to the home country.

Whether you’re nearshoring or offshoring, the most fundamental parameter has not changed. Selecting the right supplier partnerships are crucial to nearshoring success. Additionally, it’s important to note the need for a diverse supplier base and avoiding sole-supplier situations. It’s crucial to build close relationships with a focused set of strategic suppliers in the nearshore destination, as they enable stronger supply chains.

Having a set of transparent, mutually aligned performance goals is key. When buyers and suppliers work toward agreed performance goals together—by sharing data, insights, and ideas—risks decrease, innovation opportunities are uncovered, and costs can be optimized.

Close relationships also allow for suppliers to collaborate and be involved in product innovation and design as well as supply chain planning and sustainability-related projects.

Building strong supplier relationships can be also highly beneficial during challenging economic and political times. For instance, during the pandemic and energy crisis, positive relationships proved to be invaluable due to the high level of established trust.

Another practical strategy to adopt when nearshoring is analytics-driven supply chain monitoring. Having access to ongoing insights into suppliers of suppliers and emerging demand-supply situations allows companies to see the bigger picture, analyze details and take appropriate action. Organizations using analytics driven solutions are generally more successful in managing supply chain disruptions.

It’s essential for businesses to navigate the practice of nearshoring strategically to reap potential benefits.