Global manufacturing supply chains keep businesses functioning around the world. In leading economic countries like the U.S., companies have long sought to find new models such as outsourcing to decrease costs while also expanding their pool of resources. Because of this, offshore manufacturing has exploded within the last few decades.
However, with the global COVID-19 pandemic, shipping bottlenecks, and increased political tensions between the U.S. and China, many businesses are rethinking their offshore manufacturing strategies. Here is a deeper look at the benefits of moving your supply chain closer to home and how your company can still compete on a global scale.
Offshoring, Onshoring, and Nearshoring: What’s the Difference?
There are three main categories that outsourced manufacturing falls within – offshoring, nearshoring, and onshoring. Whether your company handles its own global supply chain or it works with an outsourced manufacturing industry partner, each setup makes a big difference in how your company runs.
With major advancements in global supply chain communication, transportation, and manufacturing, many U.S. companies have their products produced overseas in places like
In other cases, companies buy the resources that they need from these countries. Raw materials like wood, steel, iron, diamonds, oil and oil products, rare metals, and other options can easily be purchased and shipped around the world. It’s also very common for a U.S. company to source sub-components globally, and conduct final assembly and inspection in the U.S.
Some of the many benefits of offshore manufacturing that companies enjoy include inexpensive labor, a highly skilled workforce, and less expensive raw material costs.
However, global outsourcing does not have to be the default way to manage your entire manufacturing supply chain. There may be benefits to choosing to manufacture some of your components and products closer to home.
As the opposite of offshoring, onshoring is moving your manufacturing back to your home country. Despite the growth of overseas manufacturing over the past few decades, companies are taking a close look at diversifying part of their supplier-base onshore.
Companies considering this change might be looking to avoid import tariffs, simplify their supply chain, or reduce the overall carbon footprint of their product. However, they may be met with significant increases in overall cost, so a full analysis of the potential impact of the move should be considered.
Many companies lack the resources, time, or desire to establish and manage a diversified supplier base. One option to consider is partnering with a manufacturing supply chain expert within their home country that can analyze options, set up, and manage the perfect balance between offshore and onshore manufacturing.
As a middle ground between offshoring and onshoring, nearshoring is sourcing from companies that are located near or around your home country but not a great distance away. As an example, a company in the U.S. might consider buying from companies in Canada, Mexico, and maybe even parts of Central America. The thought process in this scenario is to benefit from both the cost savings you might see with offshore manufacturing coupled with the conveniences of having local suppliers.
So Which Outsourcing Strategy is Right for You?
Each method has its advantages, and often, a mixture of offshore, nearshore, and onshore manufacturing makes the most sense. Here are some important areas to consider when undertaking onshoring or nearshoring versus offshoring.
Reduced Transportations Costs and Profitability
Costs are often the first and biggest concerns in managing any supply chain. And while offshoring is typically associated with lower costs, nearshoring, and onshoring can have their own cost benefits.
For example, manufacturing goods closer to your company can be more cost-effective for shipping, handling, and warehousing. In the long run, you can save money and reduce your carbon footprint. However, be cautious of poor roads and transportation conditions in nearshore options.
Faster Turnaround Times
With a shorter distance between you and your supply base, you can also respond faster to changes in demand or market trends. You may not have to deal with delays that arise due to time zone differences. Factors like these can be minimized, making it easier and faster to work with a neighboring manufacturing partner.
Control and Influence
Another benefit of onshoring and nearshoring is that you have more control and influence over your business partners. It can be easier to communicate and enforce quality standards without significant language and culture barriers. You can also visit your warehouses regularly.
Reduced Political Risk
International manufacturing does not come without risks. Some of the most common pitfalls of offshore manufacturing are real and perceived political instability, logistics bottlenecks, government regulations, IP protection concerns, and natural disasters.
To mitigate these risks, numerous companies diversify their supply chains so they do not rely on a single source. Instead, they will adopt, for example, a China+1 or an Asia+1 strategy.
Are you looking to diversify outside China? Contact ITI today to see how we can manage and implement this challenging process for you.
Lastly, depending on where you manufacture your goods currently, you may be exposed to import/export liabilities and expensive tariffs. When dealing with a neighboring country, tariffs are usually less.
Keep in mind, however, that even with the reduction or elimination of tariffs, your current offshore factory may be less expensive than a nearshore option.
To Refine Your Outsourced Manufacturing Strategy, Ask the Experts at ITI
Optimizing your manufacturing supply chain on your own can be difficult and expensive. However, you can get help from the experts at ITI Manufacturing. Schedule a consultation with our team to discuss your unique needs and the corresponding options that will work best for you. Our expertise and experience allow us to offer each of our clients a unique, turnkey solution that aligns with your company and product goals.