6 sourcing strategies for reshoring and nearshoring

Companies looking to gain greater control and minimize disruptions are turning to domestic supply chains. Here’s what to consider first.

“I hear the Czech Republic has some great machining companies and a friend of mine said his company saved a ton of money there,” said the general manager of my high-tech employer who was on his annual cost savings search, akin to a fishing expedition.

Knowing it wouldn’t be a good fit, I tried to hide my annoyance. Still, “we’re having trouble managing suppliers across town let alone halfway across the world” came out of my mouth before I knew it.

It took me a while to get out of the doghouse. But my sentiment holds true, especially now.

The pandemic related upheaval in the global supply chain, coupled with the war in Europe, has once again put international supply chains in jeopardy. Companies are quickly looking to reshore their supply chains to gain greater control and keep them out of harm’s way.

Here are six ways procurement can adopt a reshoring and nearshoring sourcing strategy.

Map your offshore supply chain
Identify all tier 1 and critical tier 2 and tier 3 offshore suppliers. While this mapping should have already been done, it is still not too late to start. A global map with color coded pins provides a good visual clue as to the actual locations of your suppliers.

While I knew that supply chains crisscrossed the globe, I was never an advocate of direct outsourcing to other countries. In many cases, I felt the savings were phantom, the communication awkward, the logistics complicated and the risk just too high. While I often used local and regional companies for outsourcing, none of my commodities made sense to move offshore. But the pressure sure was high to do it in the heyday of global sourcing.

I was once part of a panel discussion on offshoring for a local procurement trade association. The audience of procurement managers was extolling the virtues of offshoring, claiming the unit cost savings were extraordinary. I asked about actual landed costs and most told me they were not measured on that metric. When I followed up, asking about inventory issues, one buyer told me he just goes back to his former suppliers and buys what he needs, and yes, at a higher price. When I asked him how much he was really saving from offshoring, I got a shrug.

Re-establish relationships with previous suppliers of offshored products
These conversations may indeed be awkward, but necessary. In fact, those suppliers may have already been in touch, sensing a sales opportunity given the supply chain turmoil. Sure, you may eat some humble pie, but business is business. No one will refuse new orders.

Continuity of supply is currently replacing cost in today’s threatening world. Buyers who may have engaged with offshore suppliers searching for labor and materials savings in a low cost at all costs sourcing mentality are now looking for the safer haven of more local suppliers, knowing that their unit costs may be going up. These new suppliers need not be in the local industrial park but within a more friendly and accessible region such as Mexico and Canada. And in some cases, companies are re-establishing their own manufacturing capabilities, creating a more vertical business approach.

Review make / buy decisions
This is the time to work in concert with the S&OP team to make some forward-looking operational decisions. Often when items or production lines are outsourced, the capacity to produce those products ends as well.

But some companies are looking to bring manufacturing back under their full control and that certainly impacts procurement decisions.

Identify new sources of supply
The pandemic and related economic fallout has changed the supplier landscape. Historical sources may have changed their business model or even closed their doors. Part of a reshoring and homeshoring strategy is to find new sources of supply.

Don’t minimize your supplier selection process, even if under time constraints.

Commit to a new long term supply strategy
Homeshoring and reshoring takes a massive effort in time, energy, and money. It may take months and years before the dust settles and the new supply chain is running smoothly.

Yet, institutional memories are short and at some point, your general manager may start to look at some cost savings opportunities and mention how she heard that some offshore suppliers may be offering some interesting pricing. Remain committed to whatever long-term plan you set.

Don’t panic
It may make sense to move some of your offshore procurement back to friendlier territory but in some cases your supply lines might be secure and functioning well. There might not be any reason to change them. Work with your suppliers to assess risk and make thoughtful sourcing decisions.

No matter what, be careful in how you react. Every company has a doghouse.

Source: Supply Chain Dive

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