“The main driver I see for why people are nearsourcing is really more towards customers, because customers are expecting more Amazon-like service,” says Lisa Anderson, a manufacturing and supply chain consultant and president of LMA Consulting Group Inc.
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Rising wages in China and a weak peso again make Mexico an increasingly attractive destination for manufacturing
The Trump Administration’s contentious relationship with Mexico, possible changes to trade agreements and its public focus on American manufacturing has led some to reconsider moving jobs south-of-the-border. But what’s often lost in the rhetoric and public relations arm wrestling is the growing trend of nearshoring.
As opposed to offshoring, where American jobs are moved to another country, or reshoring, where those jobs come back, nearshoring describes when an American manufacturer moves jobs from far overseas, typically China, to our North American neighbors in Mexico or Canada.
Rising wages in China, along with concerns over intellectual property rights, rising freight costs and the low value of the peso have made Mexico an increasingly attractive destination again for manufacturers looking to make labor-intensive products. Many of those new Mexican facilities come at the expense of American factories, for certain, but many will come at the expense of China’s, or India’s. And while President Trump’s trade agenda has given some manufacturers pause, the nearshoring trend is likely to continue, says Harry Moser, founder and president of the Reshoring Initiative.
Reasons for Nearshoring: Wages, Freight Costs and Proximity
The story is almost always the same when a company calls asking about nearshoring, says Source One Director and Head of Global Sourcing Diego De la Garza.
In addition to rising rates in China, manufacturers are also interested in bringing work to Mexico due to its geographical proximity. That leads to savings in freight and shipping, in addition to supply-chain efficiencies and reduced lead times.
“The main driver I see for why people are nearsourcing is really more towards customers, because customers are expecting more Amazon-like service,” says Lisa Anderson, a manufacturing and supply chain consultant and president of LMA Consulting Group Inc. “It doesn’t matter if they compete at all with Amazon, most of my clients do not. However, the Amazon-like service has become a standard. My manufacturing clients, whether they’re in aerospace and have a really long lead-time—or in some cases they’re in food or building products and their lead time is really short—regardless, their customers are expecting about a 50% reduction in lead time. They’re expecting really rapid deliveries, they’re expecting 24/7 types of service levels.”
Published in Quality Magazine on June 1, 2017