Right Shoring: The Better Option11.06.14
The cost increases in labor, transportation and inventory management over the last several years have meant that offshoring manufacturing to Asia is no longer the default option. Today the trend is “Right- Shoring” which takes into account the cost/benefit of one, or a combination of, offshoring, nearshoring and reshoring to best achieve corporate goals.
In addition to reducing transportation costs, which is not insignificant with today’s cost of oil, right-shoring is about maximizing efficiency of the supply chain through closer proximity to demand. It allows for not only greater flexibility and a shortened timeline to design and fabrication changes, but follows through with a whole host of benefits:
- Lower inventory costs
- Reduced complexity
- Better service to customers due to closer proximity
- Reduced supply chain disruption impact
- Reduced risk relating to currency/exchange rate fluctuations
- Reduced carbon footprint
What to Consider
While there certainly are companies for whom offshoring is still a good option, right-shoring is by far the better option for a great many industries. Products that benefit the most have one or a combination of the following characteristics: complexity, short lead times, variable demand, large product size/weight, and concerns about protection of intellectual property.
Another important factor is the total landed cost calculation. In addition to labor rates, transportation and customs duties, total landed cost takes into consideration indirect influences such as regional issues, product quality concerns, people and talent, logistics visibility, inventory costs, border-crossing complexities and more. All of these need to be considered in the total cost of operations.
Finally, there is a one-time cost involved with cost/benefit and risk analysis. This is the due diligence, including visits to potential locations, that will cost upfront, but save money in the long run.
Having been involved in helping companies conduct successful right-shore/nearshore manufacturing operations in Mexico for over 30 years, we at IVEMSA are intimately familiar with all of the details outlined above. If we can assist with a cost/benefit analysis, please contact us any time.