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Nearshoring Still Searching for Adoption

Based on level of industry interest, bringing manufacturing closer to the consumer is a hot trend. However, there has been less traction in terms of industry movement toward nearshoring.

In late 2013, UPS released its UPS Change in the (Supply) Chain survey findings, which is an annual survey of high-tech logistics executives in North America, Europe, Asia-Pacific, and Latin America, conducted by IDC Manufacturing Insights. The survey provides insights from high-tech leaders on their supply chain and business challenges, upcoming plans, and anticipated trends in the industry. This year, we launched the findings via an EBN Live Chat, moderated by EBN editor in chief Hailey McKeefry; it provided a very interesting opportunity to engage with readers and bloggers, and we learned a great deal about what issues they are facing.

The 2013 survey focused on hot topics in the high-tech industry, including the growth in nearshoring, the rise of the customer-centric supply chain, the importance of enhancing all stages of the product lifecycle, and lessons learned from entering emerging markets. Each of the next few blog posts will take a deep dive into one of these important focus areas, beginning today with trends related to nearshoring in the high-tech industry.

The discussion around sourcing strategies has been an important one in the high-tech industry for a number of years, yet there has not been widespread adoption of nearshoring in the industry. Interestingly, in this year's survey, we found that 27% of high-tech logistics executives globally are currently nearshoring or plan to nearshore. While this percentage may seem low, it is up from 10% just three years ago, indicating executives are beginning to realize the benefits of nearshoring to their business, products, and service.

Despite this growth, globally, the vast majority — over 70% — of logistics decision makers aren't nearshoring today and aren't planning to nearshore, illustrating that barriers are still prevalent. Not surprisingly, the cost benefit of China or other low-cost manufacturing countries is still compelling, as cited by 50% of those surveyed, when asked about barriers to nearshoring. Other top barriers cited included the location of key suppliers (46%) and the current sourcing footprint supporting expected global demand demographics (45%). These barriers highlight the balancing act in sourcing — executives are weighing cost, product quality, and customer service factors as they develop sourcing plans to meet evolving business goals.

In fact, high-tech executives planning to nearshore are already prioritizing factors beyond cost as key reasons to embrace nearshoring. According to this year's survey, of those planning to nearshore, 77% said a top driver was improving service levels by bringing production closer to home, and 55% said they wanted to improve control over quality and intellectual property. These drivers taking center stage could be due to a number of factors, including ensuring security in the supply chain or the connected and feedback-driven consumer that has caused many companies to re-evaluate and enhance customer service to drive better business performance. In fact, our next blog post on the findings will focus on the role of best-in-class customer service to high-tech products.

In anticipation of the next blog, let's hear from you. What role does customer service play in your supply chain decisions today? Is it a top priority? Or do other factors outweigh it?

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3 comments on “Nearshoring Still Searching for Adoption

  1. _hm
    February 26, 2014

    Like economics, this may look like and feel like herd mentality.

    Most so called mangerial decision maker do not understand iota of this phenomena. Once some one does it and they read it in news, they follow the suit – mob mentality.

    As for the logic, you can rationalize it either way and prove it correct. May be in this logical argument, base assumptions are wrong.

    But all in all nearshoring is good news and should happen quick.

  2. Hailey Lynne McKeefry
    February 26, 2014

    There's clearly a big gap between interest in this topic and actual ability to move forward. As organizations take a broader view of cost (adding in customer experience, time to market, corprorate brand, etc.) For those of you are having these conversations in your organizatoin, what are the biggest concerns you are hearing? What benefits are organizations focusing on achieving?

  3. Eldredge
    February 27, 2014

    Based on level of industry interest, bringing manufacturing closer to the consumer is a hot trend. However, there has been less traction in terms of industry movement toward nearshoring.

    When it comes time to make the financial investment, the economic level of interest is revealed. I certainly hope that companies continue to evaluate the benefits of onshoring and nearshoring, with a broad consideration of all of the economic factors.

     

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