What’s really the cheapest shore? Why nearshore, and how do you decide?
Andrew Atkinson, Director, Product Marketing, E2open - Friday, January 27, 2012
In the recent report, "Predicts 2012: Supply Chain Predictions: Talent, Risk and Analytics Dominate," Gartner projects that by 2014, "20 percent of Asia-produced and U.S.-consumed goods will be nearshored in the Americas." This nearshoring shift will be part of a more general move from low-cost country sourcing strategies to optimized-cost country strategies.
What does this really mean? According to Gartner analyst Michael Dominy, it means that "North American enterprises underestimate the total supply chain costs of offshoring to Asia. Escalating oil prices, globally, and rising wages erode initial estimates for cost savings that did not account for inventory-carrying costs, lead times and product quality."
The bottom line is that it's extremely difficult to determine your real, total landed costs—and they will change all the time, as component costs shift, commodity prices bounce up and down, and transportation costs shadow the volatile price of fuel.
Predictions from fellow Gartner analysts Mickey North Rizza and Richard Adams continue to build the case: “The next wave of offshore and local-market sourcing will include optimization of lead time, transportation costs, supply chain risk and a host of other factors to measure optimized country sourcing.”
Some real-world examples have been offered up. In the November 2011 article “When offshoring backfires” VoxEU.org columnists Xiaole Wu and Fuqiang Zhang wrote: “It should not come as a surprise that more US manufacturers are ‘reshoring’, ’onshoring’ and ‘backshoring’. General Electric announced last year that it is moving some of its appliance manufacturing from China to Louisville, Kentucky. NCR Corp. is pulling all of its ATM machine production from China, India, and Hungary back to a facility in Columbus, Georgia, in order to customise products and get them to clients faster. In their announcements, these firms emphasised that by being closer to the market, they can better understand the market and are able to respond quickly to market changes.”
Net-net? Forward-looking companies will need access to extensive, detailed, real-time data in order to design effective, competitive supply chains. This, of course, requires the ability to gather timely and accurate data from every tier of the trading network. And because most of this data is in a constant state of flux, companies will need to gather and manage it continuously.
It’s a tricky task to say the least, but the following core capabilities will give you the means to get it done:
- Electronic connectivity across multiple tiers of trading partners
- A business process layer to normalize multiple sources of data and output the information in an actionable context
- A collaborative analytics layer to guide exception management and crisis resolution
Are you nearshoring, or thinking about it? Drop me a line and let me know what kinds of changes you are seeing in your supply chain.
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