The urgentneed for supply chain resiliency is increasing interest in onshoring, reshoring, and nearshoring strategies. After years of economic volatility, labor shortages, extreme weather, demand and supply shocks, and geopolitical tensions, supply chain leaders are looking to calm the chaos and bring back predictability. Yet, their search is more than a matter of finding low-cost alternatives. They’re also carefully pursuing suppliers, manufacturing, and distribution locations that are sustainable and resilient.
According to Reshoring Initiative, companies seeking to limit their exposure to supply chain uncertainties and global conflict risks are moving operations from East Asia to the United States or as close as possible.
Whatever the rationale, this trend – which includes onshoring, reshoring and nearshoring – offers enticing tradeoffs. Costs, such as, labor and taxes may increase while other costs (such as logistics and tariffs) decrease, but the real reward comes from making viable choices for bringing operations closer to the end customer.
Optimize network design as part of supply chain planning
As Lisa Henriott, senior VP of product marketing at Logility, advised in Supply Chain Management Review, the key to effective onshoring, reshoring, and nearshoring strategies is evaluating network design options within a larger supply chain planning platform. “By leveraging a comprehensive platform companies can review scenarios through the lens of advanced demand, inventory and manufacturing planning optimization capabilities,” Henriott said.
This exercise, called network design optimization, helps rethink the supply chain based on multiple variables, including customer demand, demographic trends, labor availability, supply availability, and regional markets. When performed regularly, network design optimization can help companies decide which interim steps (such as goods sourcing) and significant investments (like building a factory in a new region) should be taken to accommodate supply chain shifts.
By treating network design optimization as an integral part of supply chain planning efforts, organizations can make the tradeoffs needed to become better prepared to tackle challenges of varying degrees of complexity, for example:
- Talent access: Mitigate labor shortage by knowing where skilled and unskilled workers are available, which types of compensation meet local expectations and laws, and what training and support are needed to guide optimal outcomes.
- Infrastructure limitations: Choose locations that are close enough to customers to maintain delivery services that are competitively priced and safe while seeking facility investments that can be redesigned or rebuilt to meet operational needs.
- Ecosystem rebuilding: Understand the risks and opportunities of onshoring, reshoring, or nearshoring supply chain operations, such as how transportation routes, logistics regulations, , plant shutdowns, or port disruptions can impact supply.
By gaining data-driven consensus across strategic, operational, and tactical decisions, supply chain leaders can improve operational resiliency. They can quickly adjust their supply network and explore alternatives to respond to the implications and opportunities of emerging challenges before the competition does. Furthermore, every choice can improve earnings before interest, taxes, depreciation, and amortization (EBITDA) and reduce risks in future shipments for each vendor.
Minimize risk by viewing Supply Chain Design through a Data-driven lens
Success in onshoring, reshoring, and nearshoring requires a dramatic shift in how companies view their global supply chains and related strategies, processes, and mindsets. For example, moving operations to regions with lower labor rates, higher availability of needed workers, or closer proximity to most customers may initially seem like a great idea. However, such changes are not immune to tradeoffs that may increase your costs in other business areas.
With network design optimization, decision-makers can rewire their supply chains with a clear, transparent lens of the potential magnitude of challenges and missed opportunities that reshoring or nearshoring can bring.
Want to learn how your business can answer complex supply chain questions and make better decisions faster? Explore the network design optimization capabilities of the Logility Digital Supply Chain Platform.