23 Feb 2021 • WEBINAR
Handling supply chain disruption: Nearshoring and Offshoring
Handling supply chain disruption has become increasingly important in recent
Blog post written by Nick Wildgoose BA (Hons) FCA FCIPS
Date: 19 January 2021 | Time to read: 7 mins
These together with geopolitical issues like Brexit and trade tariff negotiations, have led many businesses, and their procurement teams, to press the reset button on procurement and supply chain activities. They have realised that supply chain agility and resilience will be key to competitive advantage and survival in the new business environment. The key aspect to driving any of these changes is having access to the appropriate actionable data that provides forward looking insights.
As part of these changes, nearshoring of supply chain activities is being considered as a better approach. This may be simply defined as the transfer of business processes to companies in the country location of your own production site or that of a nearby country.
There are several potential supply chain nearshoring or regionalisation benefits, if we consider how best to combine a digital first approach with process flexibility, several benefits stand out:
The appropriate adoption of nearshoring provides you with the required agility and speedy response for customers can be of great help. Inditex, has become one of the most successful fashion retailers in the world, based on a nearshoring strategy, allowing it to quickly respond to customer needs. Inditex works with its suppliers to provide fashion products that meet all its relevant due diligence requirements including demanding sustainability and health and safety standards, built on respect and promotion of human rights and transparency.
Levi’s have also recently nearshored production for jeans using fully automated distressing, by using lasers, to replace substantial manual efforts in low-cost countries, also providing the required customer service agility.
Pegatron, the Taiwanese consumer electronic producer among others, has relocated its China operations to the Czech Republic. They were driven by developments such as offshore wage escalations and fluctuating costs of goods sold, weak far-shore intellectual property and technology protection, trade wars and tariff increases, trends towards customised, next-day delivery, and evolving societal pressure for sustainability.
In October 2020, a survey from Alvarez & Marsal states that around 7 in 10 major European retailers have reviewed their supply chain due to the weaknesses revealed by the pandemic and 14% have started onshoring trade, while almost a quarter have started nearshoring.
We have also seen a spreading of supply chain risk concentration with elements of production being moved from China to Vietnam, for example, in recent years. This occurred initially in garments and shoes but has moved to high tech, with Samsung now accounting for around 25% of Vietnam’s exports and Intel placing its biggest global chip manufacturing in the country.
In driving improvements in supply chain resilience, including nearshoring, you need to be aware of the following:
Ask yourself the question, do you have the relevant supplier data to hand to understand the changes in your risk picture and quickly identify alternative suppliers of the relevant product? Just because you nearshore an activity does not mean that you have automatically reduced the risk within your supply chain. If you are considering nearshoring, these several aspects should be taken into account:
One of the key areas for risk mitigation is having data available to understand the changes in the risk picture and facilitate the required proactive agility, both from a supplier sourcing and management perspective.