#103 – Inside Our Industry – U.S. Companies Face Hurdles in Moving Production Closer to HomePosted on
Last week we shared information on reshoring and FDI job announcements for the year hitting a record high (Issue 102). This week, the topic is near-shoring, or moving production closer to the end user. While it sounds like a good option, the pitfalls are many.
U.S. Companies Face Hurdles in Moving Production Closer to Home
Lydia O’Neal | wsj.com | April 18, 2022
It may take years to duplicate the supplier networks and availability of raw materials on a scale found in Asian manufacturing hubs, experts say
Companies looking to make their supply chains more resilient with nearshoring strategies may only be bringing production problems closer to home, experts say.
U.S. importers who are studying shifting their sourcing from the Asia-Pacific region to Mexico and deeper into Latin America are finding it tougher to find suppliers with the right raw materials, production quality and networks for getting their own components that have been established in manufacturing hubs like China and Southeast Asia. Reproducing that capacity and re-creating clusters of suppliers under a nearshoring strategy will take years, experts say.
“Undeniably, China is the single biggest market for all sorts of nuts and bolts, everything from your basic components to sophisticated components,” said Kamala Raman, a vice president at Gartner Inc. who advises companies on supply chain networks. “You cannot recreate that ecosystem in any other country of the world.”
Supply-chain disruptions over the past two years, resulting from the impact of the pandemic, have driven more Western companies to look at moving production close to home. The push has gained steam as bottlenecks have left seaports jammed, store shelves empty, factories idled and many billions of dollars of goods stuck in overstuffed distribution networks.
Nearshoring, or placing production closer to consumers and end users, is supposed to make supply chains more resilient to such shocks by eliminating the long supply lines that can subject shipments to more disruptions and higher costs.
White House economists said in a recent report that decades of moving production to distant countries has made many supply chains “complex and fragile, with central nodes that lack agility and have few substitutes.”
But shifting supply chains built up over many years is a complicated undertaking, particularly when the availability and transport of raw materials and components that go into final assembly have to be accounted for.
“When we talk to companies, it’s still on the agenda,” said Ed Barriball, a partner at consulting firm McKinsey & Co. in Washington, D.C., who advises clients on supply chain and logistics operations. But, he said, “the realities of the transition can be bumpy.”
Omar Troncoso, a partner in the consulting firm Kearney based in Mexico City, said the firm saw “an amazing increase in the number of clients trying to nearshore” over the past year and that Mexico is a favored target because of its proximity to the U.S. Mexico also has existing manufacturing infrastructure and established freight transportation networks.
Although 70% of CEOs have planned, are considering or expect to move manufacturing to Mexico, only 17% have already done so, according to a recent Kearney study of American manufacturing executives. Global Supply