During the Covid-19 pandemic, U.S. consumers became keenly aware of a startling statistic: about 20% of all U.S. imports are made in China. Billions more products are produced in India, Bangladesh, and Japan. That means that when catastrophe strikes—in the form of war; natural disaster; or a global pandemic—the U.S. supply chain will inevitably be affected.
This, in addition to rising shipping costs and other factors, has caused many companies to consider “nearsourcing,” or sourcing products and services from countries much closer to home, like Mexico or Central America. In this article, we’ll discuss the benefits of nearsourcing your supply chain, as well as some drawbacks to consider.
What is nearsourcing?
Nearsourcing is the practice of moving production facilities closer to the end customers. It usually involves establishing new factories or warehouses close to a company’s corporate base, or relocating existing facilities from distant countries. By nearsourcing, companies can achieve greater efficiency while maintaining a competitive edge in their respective markets. They can also reduce their dependence on overseas suppliers and build a more self-sufficient business ecosystem.
The top advantages of nearsourcing
Localizing your supply chain has numerous advantages. These include reduced shipping costs, faster delivery times, and a more responsive, agile supply chain. There are also many non-financial benefits, like reducing environmental impact and having greater oversight over labor practices.
Reduced costs
Local suppliers often charge less than foreign suppliers, due to lower transportation costs and fewer shipping expenses. And when businesses work closely with local suppliers, they can often foster better relationships with them, leading to better deals and terms in negotiations. Finally, nearsourcing can often improve the quality of the items that are produced, saving businesses more money in the long term as customers come to trust the value of their products.
Faster delivery times
One of the biggest disadvantages of overseas sourcing is the fact that items can take weeks, or even months, to arrive. This can be frustrating to ecommerce shoppers, who must wait for items to come back in stock, and also negatively impacts profits for brick-and-mortar retailers. When products are shipped locally, instead of from overseas, they can be brought to market much more quickly, leading to faster growth and increased customer satisfaction.
Greater responsiveness
Another benefit of nearsourcing is that it allows businesses to be more responsive to market fluctuations. When businesses cooperate with neighboring companies, they can more easily adapt their production levels in response to variations in demand. Nearsourcing also helps businesses resolve issues more quickly, because they can exchange information quickly, in the same time zone.
Lower risk of disruption
Many supply chain crises, including the Covid-19 pandemic, have caused problems for both suppliers and retailers. Sudden surges in demand, or emergency restrictions, can cause massive delays in production and delivery, and can be impossible to predict. Nearsourcing means that disruptions like tsunamis, earthquakes, terrorist attacks, and disease outbreaks are less likely to affect U.S. businesses who are uninvolved.
Better quality control
While foreign vendors are often a more inexpensive option, they may not provide transparency regarding their quality assurance practices or product safety standards. Bringing suppliers closer to home makes it easier for companies to ensure that all products meet industry and organizational standards. It’s also easier for companies to inspect products before they reach their customers’ hands, therefore mitigating expensive PR disasters.
Better labor practices
Foreign vendors have also been known to hide unethical labor practices from the businesses that employ them. If those unethical practices are brought to light, it can damage the company’s reputation, its consumer trust, and its profit margins. Nearsourcing helps businesses have greater control over their vendors’ labor practices, so that they can avoid lawsuits, legal penalties, boycotts, and other consequences.
A healthier environment
Nearsourcing is also much better for the global carbon footprint. When goods are produced closer to their end consumers, transportation emissions are greatly reduced. Creating a greener, cleaner world benefits all those who inhabit it, including business owners. Nearsourcing also helps promote more environmentally friendly manufacturing practices, and helps create stronger local economies.
Disadvantages of nearsourcing
It would be remiss of us to highlight the advantages of nearsourcing without touching on some of the drawbacks. The greatest, perhaps, is that it does not provide companies with as many resources as offshoring does. Companies which use offshore suppliers usually have access to a more diverse range of skills; more raw materials; and better technology. When an organization limits their supplier to a single hemisphere, they will inevitably be limiting their access to these resources, too.
Locally sourced suppliers can also be more difficulty to scale. They tend to be smaller than their far-away competitors, with smaller production capacities. However, as your businesses work together, they may be able to build more facilities and hire more labor—but can be a time-consuming process.
Finally, local sourcing usually comes with higher production and labor costs, which will affect the cost-competitiveness of your products in the global market. As a result, careful cost-benefit analysis is essential to ensure that the benefits of local sourcing outweigh the disadvantages.
How to Localize Your Supply Chain
Localizing your supply chain can be a complex process. If you’re ready to begin, here are the next steps you will need to take:
- Identify the right local suppliers. This can be done by researching local suppliers, meeting with them, and assessing their capabilities. You can also ask for references and examine their track record.
- Assess the risks, opportunities, and benefits.Before making a commitment to a local supplier, it is important to carefully consider factors such as cost, delivery times, and flexibility.
- Monitor performance.Once you have localized your supply chain, measure their performance. This can be done by tracking delivery times, evaluating customer service, and assessing the quality of the products or services they provide.
Whether you decide to pursue local or international suppliers, remember that your priority is always the development and future of your company.
Go local with SSI Packaging!
SSI Packaging is a family-owned packaging company based in Richmond, Virginia. Since 1967, we have helped companies up and down the East Coast. We’ll help you get anything you need, from industrial printing machines to bubble wrap. To learn about how we can help your business, click here.