Redefining Global Supply Chains: The Impact and Opportunities of Nearshoring

by Editorial Team

Explore how nearshoring is transforming global supply chains, driven by automation, regulations, and the quest for efficiency. Discover how businesses are navigating these changes and leveraging opportunities for growth and resilience.

In the face of an increasingly complex global landscape, businesses are rethinking their manufacturing footprints. The geopolitical climate, coupled with years of sourcing and logistics challenges exacerbated by COVID-induced global disruptions, has exposed cracks in the global supply chain and highlighted associated risks. This has led to a significant shift towards nearshoring, a strategy that involves moving business operations closer to home.

The decision to nearshore is not a simple one. Executives must juggle market-by-market variations in labor costs, evolving trade regulations, ongoing economic pressure, and the need for a global business plan to navigate this complex environment and cultivate profitable growth.

The impact of globalization and free trade has been a heavily debated topic among scholars, economists, and policymakers. For the first time, we are witnessing an emerging trend driven by a number of catalysts and external factors that are redefining the “comparative advantage” equation, while balancing it with social and domestic agendas.

Automation is playing a crucial role in this shift. Companies invested over $2 billion in the U.S. for nearly 40,000 robots in 2021 alone[^3^]. This investment in automation serves as the cornerstone for a domestic manufacturing ecosystem in which increasing levels of scale will be achieved, and the economics of nearshoring will consistently improve.

The report by AlixPartners highlights a case where initiatives in yield, energy reduction, labor optimization using IoT, Computer Vision, and Advanced Analytics reduced scrap by 25%, utilities cost by 5%, and overtime by 50%. These initiatives, implemented over the course of six months, created savings of more than $20 million.

However, nearshoring is a complex multi-variate problem that requires an understanding of changing policies and regulations, cost drivers, supply chain, product design, supply market, as well as competition & pricing. To make better-informed decisions, companies must expand the equation to understand the cost of risks associated with quality, warranty, inventory, write-offs, and lead time, including ESG factors and service levels.

In conclusion, the U.S. may be at the beginning of a nearshoring revolution as the total-cost-and-risks-of-ownership (TCRO) equation in a disaggregated supply chain is being re-written by technological advancements (AI/Generative-AI and automation) along with policies and regulations. The factors driving the business case for companies to participate in nearshoring are becoming clear, consistent, and far-reaching and the number of industries affected by it will expand as the ecosystem evolves.

Key Takeaways

  1. Nearshoring is becoming an increasingly attractive strategy for businesses, driven by factors such as automation, changing trade regulations, and the need for a global business plan.
  2. Automation is a key driver of the shift towards nearshoring, with significant investments being made in this area.
  3. Understanding the total cost and risks of ownership is crucial for businesses considering nearshoring.

What are your thoughts on the shift towards nearshoring? How do you think it will impact global supply chains in the future? Share your thoughts in the comments below.

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