Onshoring, nearshoring, reshoring – these are terms that we keep hearing in growing popularity lately. Even before Covid-19, many companies have considered onshoring their operations due to concerns about quality and supply chain disruptions. Political tensions and rising tariffs also triggered the growing considerations.
When Covid-19 hit, it led to sky-high air and ocean freight rates. Any companies with operations in China saw their productions come to a halt. Offshoring your operations has never been riskier. You never know what could happen in another region and how that could affect your operations if offshored. So, the question is, should you be onshoring your operations?
Before the 1980’s manufacturing had a large presence in the United States. Technology improved communication and global transportation, so companies saw the opportunity to save on costs by offshoring their operations outside the United States. Offshoring grew and became the norm, until recently. Onshoring has become popular again due to politics, rising labor costs, and increased demand for higher quality products.
Onshoring, nearshoring, or reshoring; it all refers to the overall practice of moving manufacturing operations from foreign soil back to the United States. It may also refer to the practice of outsourcing to domestic contract manufacturers rather than overseas. Nearshoring can also refer to the moving manufacturing to outside the United States, but not across ocean waters. An example of nearshoring would be having operations moved to Mexico.
Offshoring involves outsourcing manufacturing assets far outside of the primary country of operations. American companies have traditionally offshored manufacturing to Asian or Southeast Asian regions. Offshoring has been used in situations where production, materials, and labor costs outweigh travel complexities and shipping costs.
Poor customer service can have a huge impact to your company’s success. More than 50% of consumers said they would never do business with a company after just one negative experience. When choosing to onshore your processes, it gives you the benefit of serving and supporting your customers from “home”, which reduces your risk of your customers receiving poor service elsewhere.
Customers nowadays like to support products made in their own country. They feel that it further benefits the local economy and they feel more confident in a products quality when its been made in the same country. Depending on your customer base, this could give you a huge advantage over your competitors.
Due to the recent Amazon Effect, customers now expect their products delivered to them in days. Shorter travel times can make that expectation easier to meet. If suppliers are farther away, delivery times can sometimes be uncertain and take longer. Customers also want full transparency on their freight’s travel, and onshoring can make that more successful on your end.
Onshoring can offer you better supply chain management. It allows shorter lead times because companies can operate all within the same time zone (or at least closer to each other than if offshoring). Not to mention other processes that can take time, such as design and approval. All parties in the supply chain can have closer relationships because they won’t have to deal with the challenges of long distances and varying time zones. Nor do you have to worry about the risk of facing language or cultural barriers among locations. Onshoring is becoming very popular for those organizations that need a lot of communication to be successful.
With rising labor and shipping costs, many find savings are no longer there when it comes to offshoring. Time is money and offshoring can add weeks to delivery times. Shorter distances with onshoring mean reduced (and less complicated) transportation costs. This also means less fuel used, giving you the benefit of being greener (and customers like that).
As time goes on, overseas economies are further developing, taxing is changing, labor, wages, and shipping costs are all on the rise; all making it less profitable to handle business offshore. Tariffs have risen in recent years, with some commodities up to a 25 percent charge. By choosing to even nearshore your operations rather than offshore, you can avoid those increased costs.
There’s also the possibility of defected goods arriving to consider when offshoring. Recalled products have been a rising concern. The defect rates of shipments from other countries can be so high at times that entire batches must be inspected upon arrival. The time and expense to do this and rework or scrap products, can wipe out the savings offshoring promised and even exceed your original budget.
Before you make your decision on whether to onshore or offshore, make sure to consider all factors. Onshoring may seem like the answer right now, but will it still in the future? If transportation costs and delivery disruptions are your main concern in business, consider looking into outsourcing your logistics with third party-logistics (3PL), like Trinity. Choosing to work with a 3PL can offer you some of the same benefits as onshoring, but with less work on your part.
Author: Christine Griffith
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