Near-sourcing – a business moving its operations closer to where its end products are sold – is a growing trend as well as a strategy in the supply chain industry today. We can credit several factors for the increasing popularity of near-sourcing.
- Stable Spend Line – When sourcing globally, it is a good practice for companies always to keep “safety stock” available at all times. In a global supply chain, unpredictable problems arise, and companies need to be prepared with backups. This adds to the cost of manufacturing and storage. With near-sourcing, companies can manage their finances with more stability, predictability, and autonomy.
- Increased Costs Overseas – In the past, outsourcing was often the more efficient choice due to lower labor and resource costs in developing countries. With rising overall prices of shipping, customs, labor, and other resources in those countries, many companies are turning to near-sourcing. Additionally, prices of the past may no longer buy the same level of quality in outsourced products. Subpar to average quality products from offshore suppliers are not worth any small savings that might have occurred with outsourcing. When this is the case, the better choice for many companies in North America is near-sourcing.
- Shorter Supply Chain – When the manufacturers and suppliers are located locally or regionally, the transit time is drastically reduced. With near-sourcing, the supply chain is more strategically positioned in today’s competitive market. Companies can now arrange smaller deliveries to accommodate the changing needs and increase speed to market. Today’s shipping model, largely impacted by the “Amazon Effect”, requires faster turnaround for product delivery and demands rapid response to customer needs. With supply chain shortened, companies can better respond to customers’ needs and expectations.
- Greater Control – With near-sourcing, companies can visit the sites more frequently with less travel expense and more convenience. There is less risk of “lost in translation” as the company and those in the supply chain are more likely to have shared cultures, languages, references, etc. Also, companies can better meet the fast-changing demands and schedules for customers by near-sourcing.
On top of companies now facing new customer demand and expectations, the cost of global outsourcing and importing products from Asia and the cost of near-sourcing is equalizing. Because of that, an increasing number of companies in North America are strategically turning to near-sourcing.
Despite all the benefits, however, a near-sourcing strategy should not be adopted without a close analysis of your supply chain. Carefully analyze the total cost associated with near-sourcing in comparison to outsourcing, potential risk factors, as well as your competitors, customers, and participants in your supply chain.