The COVID-19 pandemic taught us many things, not least the flaws in our interdependent supply chain. As demand for PPE, healthcare supplies, food, and other necessities soared, U.S. organizations were stifled in their attempts to adapt due to their reliance on manufacturers and distributors in other countries. The result was extreme shortages that jeopardized the health of the nation and record levels of inflation.
Now, with demand dropping toward pre-pandemic levels, supply chain resiliency is top of mind for many organizations. This has given rise to a variety of strategies, each aiming to give companies more control over their procurement and to develop stronger, more reliable supply processes. Two of the more common protocols emerging are domestic manufacturing and nearshoring.
What Is Nearshoring?
While domestic manufacturing — the process of making products in the U.S. — is a term many are familiar with, nearshoring is a less-well-known production model. It involves outsourcing manufacturing to a company in a nearby country which, for U.S. organizations, usually means engaging partners in Mexico, Canada, or Central America. This varies from the traditional offshoring model of outsourcing to companies in countries where production is much less expensive, and which are usually located much further away from the U.S.
What Are the Benefits of Nearshoring?
For companies without the financial strength to manufacture products in the U.S., nearshoring offers more comfort and peace of mind than traditional offshoring. Generally, nearshoring results in a more familiar business relationship as well as fewer cultural discrepancies. Other important benefits of nearshoring include:
- Decreased Turnaround Times — Nearshoring helps you achieve shorter manufacturing cycle times than traditional offshoring by reducing the time spent transporting materials and goods.
- Reduced Production Costs — Manufacturing in the U.S. is, generally, more expensive than manufacturing in other countries. Outsourcing production to Canada, Mexico, or another country in Central America offers a more cost-effective alternative while still providing the benefits of working with a relatively local partner.
- More Precise Sourcing Process — When selecting an outsourced manufacturer, a thorough sourcing process helps you make the right decision. Assessing options located close to your company, rather than on the other side of the world, makes it easier to do your due diligence and, resultantly, choose the right partner.
- Simplified Communication — While there may still be language barriers to overcome, the close proximity to your manufacturing partner means you’ll be operating in similar time zones, ensuring your hours of communication are compatible.
What Are the Benefits of Domestic Manufacturing?
Though globalization and the lure of reduced production costs have driven organizations to favor offshoring, there are benefits to domestic manufacturing, not least better oversight of production, less variance in quality, and easier access to products when demand peaks. Other benefits of domestic manufacturing include:
- Greater Control — Domestic manufacturing eliminates all the headaches associated with foreign offshoring. You have increased control over the process through clear communication and don’t have to overcome cultural differences, language barriers, time zone challenges, and oversight difficulties.
- Reputational Boost — Consumers love goods that are “Made in the USA” and will often choose them over alternatives that are the product of foreign manufacturing. Marketing your products as “Made in the USA” and promoting how you’ve improved sustainability by manufacturing domestically can significantly boost your organization’s reputation.
- Strengthened U.S. Economy — Rather than outsourcing production and subsequently outsourcing jobs, keeping your manufacturing processes in the U.S. generates domestic jobs and contributes toward strengthening the country’s economy.
- Reduced Transportation Costs — Hefty shipping costs are a feature of offshoring, and though limited by nearshoring, they are significantly reduced by bringing manufacturing closer to your organization and your customers.
- More Secure Intellectual Property — By keeping the production of your goods within the U.S., you significantly reduce the risk of your intellectual property being compromised, which is often a concern for company’s who offshore manufacturing.
- Benefit from Government Investment — Promoting domestic manufacturing has been a key point of focus for the Biden administration, and it has seen the CHIPS Act signed into law and $300 billion investment into expanding employment across various manufacturing sectors. This investment should further improve the quality of U.S. manufacturing, establishing another benefit of keeping production stateside.
What Is the Best Option?
The most suitable model for your organization depends on your priorities and your manufacturing needs. If product access is a much higher priority than minimizing production costs, then domestic manufacturing may best suit your needs. However, if you’re moving away from offshoring and need a balance of reliability, limited production and shipping costs, and reduced turnaround times, then nearshoring may fit the bill.
One thing is clear: companies are diverging from offshoring and the reliance upon manufacturers in far-away nations. Government emphasis on domestic manufacturing and consumer preference for locally and sustainably made products make the shift an attractive proposition. Combined with fresh memories of pandemic-era problems and a focus from executives on supply chain resilience, it’s likely that nearshoring and domestic manufacturing models will only increase in popularity.