One way many companies are trying to make their Supply Chain’s Leaner is through “Near-Sourcing.”
Near-Sourcing is a term used to describe a business placing some of its operations close to where its end-products are sold. This is the opposite of the longer term trend of outsourcing manufacturing operations to developing nations having lower labor costs.
Companies are usually responding to increasing costs in their supply chains (ex: fuel costs), as well as rising labor costs in developing nations where they’ve outsourced manufacturing or assembly.
This doesn’t always mean bringing operations back to the home country where the firm is located. It could mean relocating or locating operations in a nearby (ex: a car manufacturer near-source some assembly operations to Mexico, instead of China).
According to an April 2013 article in Entrepreneur Magazine (More Businesses Turn to 'Near-Sourcing' to Save Time and Money) “The tide may be beginning to turn toward local production…many major corporations have already jumped on the near-sourcing bandwagon. Caterpillar, Apple, Ford and GM all recently announced they will make more goods in the U.S.”
The article points out the following steps to take to determine if Near-Sourcing is right for your company:
- Calculate the costs associated with switching – may sure to consider all of the costs and benefits including lower fuel costs, quality, productivity, technical expertise, etc to potentially offset higher material and/or labor costs.
- Analyze your delivery needs – do your customers need faster delivery?
- Factor in the potential risks of using overseas vendors – if intellectual property is important to your product it might be a good idea to keep it closer to home.
- Consider the pace of change at your company – do your products change often?
- Study your competition – what are they doing? Maybe keep some production overseas for a price advantage on some products.
Ultimately, it’s not a decision to be taken lightly and requires a lot of thoughtful analysis and even some “guess work” as to future fuel, labor and material costs. If it is a good fit, you can really save some time and money, making your Supply Chain Leaner.