The pace at which companies are opting to nearshore production has doubled in just the last year, according to a supply chain expert.
The idea of nearshoring — moving manufacturing from overseas to a location closer to home — has really been around for some time. But in the last few years following the onset of the COVID-19 pandemic, the number of North American companies looking to bring manufacturing closer to their home base has accelerated.
John Price, managing director of Americas Market Intelligence, noted during his presentation at the recent Motor & Equipment Manufacturers Association (MEMA) Aftermarket Suppliers Global Summit in Florida, that the trend dates back about a decade.
“This has been a slow-moving phenomenon going back around 10 years, which has to do with the increasingly scarce young workforce in China that is willing to work in the conditions that are normally associated with assembly work,” he explained. “There are fewer of them, they’re getting older, and frankly, they’re getting more affluent and they’re not willing to make that move. And so you have to pay them much, much more — four times more than you pay Mexican assembly workers.”
So companies are opting to move production to Mexico and even Canada.
Tom Cook, managing director of supply chain consultancy Blue Tiger International, observed that about 20 per cent of his business’ activity has involved nearshoring opportunities. In the last year, the number of companies looking at this option has doubled.
The impact of COVID played a primary role, he explained during a different session of the same conference. Companies across all industries have had issues sourcing product from China, leading to delayed orders and empty shelves.
Even though Cook acknowledged things are “levelling out,” companies recognized the “tremendous vulnerability” of being so geographically separated from their products.
“So that COVID impact has caused a lot of companies to look elsewhere,” Cook said, hence the idea of nearshoring to Canada, the U.S. or Mexico where the supply chain moves quicker.
Companies are also seeing is easier control over issues. Cook gave an example of a Detroit-based Tier 1 supplier to the auto industry that moved its manufacturing out of China and to Mexico.
“Their whole supply chain team says it’s just very easy to deal with it. If they have a problem, they get a plane in Detroit and be in Tijuana in four hours. It takes out the hassle and costs involved of going to Shanghai or Hong Kong,” he said.
Furthermore, there’s now what Cook referred to as “safety stock,” where companies are keeping extra inventory on hand so they don’t run out of product like they did when the pandemic hit.
“It used to be lean manufacturing and lean inventory management meant keeping the minimal amount that you needed. And that’s gone out the window,” he said. “Today, we’re trying to keep a much more maximum level.”