Friday, February 10, 2012

Examining Near Sourcing

Supply Chain Analysis by Jimmy Alyea

Near sourcing has been variously defined in professional  publications as “producing products closer to where they are ultimately sold,” or “the practice of getting work done or services performed in neighboring countries rather than in your own country.”  It is a concept in which a company decides to relocate its business processes to countries which are geographically nearer and, generally cheaper.  An example would be a U.S. firm moving its sourcing from China to Canada or Mexico.  More specifically, the terms refer to companies moving from one foreign sourcing or manufacturing locale to another in search of the lowest-cost labor and materials.

The growing popularity of near shoring, rather than offshoring, not only includes seeking lower-cost labor and materials due to inflation in the supply chain caused by changing wage structures and higher employee turnover rates in some countries, but also that other costs of doing business far away from home are increasing.  These include the worldwide economic crisis, the rising price of oil and thus higher costs of transportation, as well as supply chain interruptions from natural disasters such as the recent earthquake in China.  As a result, companies are rethinking their long distribution systems and sourcing patterns and redesigning them with fewer links to reduce network costs.

The advantages of reversing low-cost supply chain strategies and embracing near sourcing are many, including:   no  time-zone differences or lag time that prevents real-time communication and collaboration, fewer language and cultural barriers, lower business travelling costs to plan and oversee projects and work, shorter time to market in the case of manufacturing and reduced inventory holdings because of shortened transit times.  Near sourcing also supports the increased focus by firms on the importance of customer accommodation and fulfillment in order to achieve a strategic competitive advantage.   Ultimately, a well-run, shortened supply chain is in large part dependent upon a firm’s logistical expertise.

Copyright 2012 James L. Alyea. All Rights Reserved.