In April 2020, 878 North American companies were surveyed, with 64% of those companies reporting they will likely reshore or nearshore manufacturing and sourcing to avoid supply chain disruptions in the future. Manufacturers can shorten lead time and cut transportation costs by reshoring and/or nearshoring.
The handling of the COVID-19 outbreak in China further illustrated the vulnerabilities associated with sourcing from distant regions of the world.
- What is Offshoring and Reshoring? (Dec 3, 2018, B2Bwhiteboard)
- Leaving China: Expectations for Sourcing & Contract Manufacturing in Mexico (May 18, 2020, Co-Production International)
This post is based on the Supply Chain Dive article, 64% of manufacturers say reshoring is likely following pandemic: survey, by Matt Leonard, May 14, 2020, and the YouTube videos in the Spotlight. Image source: Shutterstock / 3D_creation
1. Let’s suppose a United States company is planning to maintain a current supplier in China and plans to nearshore a new supplier in Mexico. What is the best sourcing strategy for each supplier from the company’s perspective?
Guidance: Lead time from China is longer, but the costs may or may not be lower. Lead time from Mexico should be shorter, and costs may or may not be lower.
First, have students consider that overall costs are lower from China than Mexico, and ask which location offers the potential to obtain the majority of supplies to fulfill expected long-term demand at the lowest cost? The answer should be China.
Then, ask students what role the supplier in Mexico provides. Students should comment on the Mexican supplier offering the ability to provide a safety cushion in the event the Chinese supplier is out of the picture or short-term demand in the United States spikes. Nearshoring in this example can be used to mitigate supply chain risks.
2. How does reshoring reduce inventory levels in a company?
Guidance: This is a short review question to integrate inventory and supply chain concepts. The reduction in lead time that should occur with reshoring will directly reduce inventory levels. This may be a good time to review the fixed quantity system inventory model to highlight the relationship between lead time and average inventory levels and decreases in safety stock. Remind students that nearshoring and/or reshoring have the benefit of supply chain risk mitigation, sourcing flexibility, and inventory cost reduction.