Thinking about nearshoring? What you need to know

You want to take your company’s manufacturing out of China and bring it closer to home. You’ve crunched the numbers. It makes financial sense — not to mention the potentially reduced headaches and stress that you’ve experienced the last few years.

It will be a simple changeover, right?

Not so, according to the supply chain expert who advises the automotive aftermarket.

Change is always difficult. You can create all the financial models that justify moving your manufacturing out of a country but there are other considerations, said Tom Cook, managing director of supply chain consultancy Blue Tiger International.

“People don’t want to make that change. We struggle with that all time. They get comfortable in existing systems even though you can prove, financially, it doesn’t make sense,” he said during the recent Motor & Equipment Manufacturers Association (MEMA) Aftermarket Suppliers Global Summit in Florida.

One challenge is finding suitable suppliers in your new country of choice. You need to find companies that can compare to what was being provided to you in China.

“China is a very successful manufacturing country. They’ve got it down. They can make massive amounts of quantities, they can make all the things that we use and they can do it very cost-effectively,” Cook explained. “So you have to find suppliers that compete with that model. And that doesn’t mean they’re not out there; you just have to see where they are and who they are.”

And China has been successful for many reasons. They can control commodity costs better than anyone. Their own supply chain is well-developed and can easily bring in raw materials and components. “So [trying] to duplicate that somewhere else, that becomes a challenge,” Cook said.

The country, he added, is also very good at moving high volumes, something that other countries may not be able to do at the same pace. He also noted other financial considerations like the cost of tooling. He used an example of a Tier 2 company he works with; In China, that cost was $28,000 compared to $105,000 in the U.S.)

“So that’s an impactful consideration that we have to take into play,” Cook said. “Doesn’t mean we still wouldn’t do it. It might depend on other variables.”

Then there’s lead time. China might be about eight weeks. In the U.S., that nearly doubles to 14 weeks. “So you have to bring these into consideration,” Cook advised.

The biggest problem most aftermarket companies have is labour — getting people to work in factories. People don’t seem to be attracted to blue-collar jobs, even if hourly salaries are higher than ever.

“They can’t attract the number of people that they need,” Cook said of companies looking to nearshore.

This is an issue that has to be sorted out before a company decides to nearshore,” he added. “If we’re going to bring back the manufacturing, [ensure] that the labour is available in that particular market.”

Companies are adding incentives, such as they’ll pay off an employee’s college debt if they stay for five years. “So things that make it more attractive for people who want to be in that business,” Cook recommended.