Updated: Apr 5
Designing and building a resilient supply chain comes down to nearshoring. It’s a meticulous process and the success of a company depends on how well it manages its supply chain. Nearshoring to manage a resilient supply chain can not only help you cut costs while expecting the same results but can also allow you to speed up innovation as you are able to focus on things that matter more.
Compared to offshoring, shifting work to a lower-cost area but one within the general region is called nearshoring and it’s a great way to build a resilient supply chain that is robust and can withstand economic hurdles more efficiently while allowing companies to save more.
First, we have to understand what a supply chain is.
What is a supply chain?
In the simplest terms, the supply chain stands for the network from suppliers to distributors. Every company has suppliers, such as a raw materials provider. Once the product is made or produced, it is then processed and sent to distributors.
The actual number of players in a company’s supply chain differs from company to company and industry to industry. But generally put, you can expect producers, vendors, warehouses, retailers, and companies that handle transportation and distribution in an average supply chain of a company that produces products.
Strategy #1: Build an agile supply chain
The first strategy is to build an agile supply chain. What is an agile supply chain? An agile system aims to get things done more rapidly while being flexible to market demands, storage deliberations, and costs.
You start by stopping to optimize for pure cost savings. Rather, optimize for speed, adaptability, risk reduction, and sustainability.
Historically, offshoring has helped companies save quite a lot on the costs involved, even if the whole system of getting things done was a little clunky at best. This includes companies offshoring to China. However, nearshoring has come up as a fairly better alternative in the last few decades. It has rightly pointed out that manufacturing in Asia is slow for American businesses.
Nearshoring allows businesses to benefit from each other thanks to proximity. Proximity can be geographical, temporal, linguistic, cultural, economic, historical, or political. Mexico, for example, is a great place to nearshore because it ticks many of the above.
Being connected to the landmass through a network of federal highways allows Mexico to make things faster and safer. It also helps cut costs. More recently over the last decade, Mexico has also beaten Asian countries such as China in low-cost manufacturing labor.
It’s an economy with a fairly stable inflation rate and one of the lowest labor wages. The IMMEX program, on top of this, allows US and Canadian businesses to get tariff waivers when they produce and manufacture in Mexico.
Manufacturing in Mexico will both save money and be faster and more sustainable long term. Start sourcing closer to home, rather than from the cheapest option. Also, remember that you get what you pay for, and in the case of Mexico, you actually get a better quality and skilled workforce.
Strategy #2: Plan and execute continuously
The second strategy for developing a resilient supply chain is continuous planning and execution. Supply chains are inherently volatile. Rethinking core operational plans to stay nimble amid turmoil and rapid change is critical to success.
Your goals and operations should be aligned to the customer demand. What does customer demand speak? It can be faster shipping for some businesses or better production values for others.
Many of these demands can be met, once again, with nearshoring. Delivering, assembling, or manufacturing faster is possible only through nearshoring, such as manufacturing in Mexico vs. in Asia.
You have to make planning and execution integral to everything you do. Every aspect of the supply chain is affected by how well the top decision-makers are seeing things. For a supply chain to be truly resilient, you need it to be agile and fast.
Strategy #3: Manufacturing network diversification
Instead of manufacturing all your products strictly in Asia, diversify your manufacturing locations, such as in Mexico. Nearshoring instead of offshoring has huge benefits, such as shortened product cycles, faster shipping, and more control over inventory.
Diversifying your manufacturing network has many benefits for your business. For example, different regions specialize in different types of manufacturing and production processes. You can leverage these specializations to come up with your finished good or product faster and for cheaper.
We recommend auditing all the options you have available to you. It includes considerations regarding the cheapest way to manufacture your product. Once you have that bit pinned down, it all comes down to the prices and logistics. For example, what is the manufacturing labor cost and what costs will you be incurring during transportation of raw materials and equipment?
Mexico has one of the cheapest labor wages. It beats China and that’s the reason why more and more companies are shifting out of Asia and setting camps in Mexico, either in the border region or the Central Mexico region. Transportation to the United States and Canada is also significantly easier, hassle-free, and faster thanks to Mexico’s proximity to North America as it’s literally part of the same continent.
Developing a functional resilient supply chain is not easy. But it is definitely critical to business success. If you are just starting out then remember, companies learn from their mistakes and it is entirely possible to hit a few hurdles initially.
Agile supply chain management ensures success and quick problem troubleshooting. If your supply chain is not agile, however, then you run the risk of losing out big time. It is likely that you will succumb to changing market variables and consumer demand metrics. Being flexible and adaptable is critical and consequently, having a resilient supply chain starts from having an agile methodology of managing things.
Is your business ready to adapt to the ever-changing dynamic of consumer trends and market moods?
By: Tristan Burke