Offshoring, Nearshoring, Reshoring, Friendshoring – What to Make of Global Manufacturing Trends

In today's interconnected world, businesses are constantly seeking ways to optimize their operations and maximize profitability. One strategy that has gained significant traction in recent years is offshoring supply chains. Faced with constantly strained confidence in manufacturing in China, companies have turned to multiple offshoring alternatives and are exploring manufacturing relationships with new countries. So, what are the best options for supply chain leaders looking to best time their moves and investments? We sat down with supply chain consultant Steven Lustig of Lustig Global Consulting for a conversation on what’s ahead for supply chain management.

From Shore to Shore

Since before the pandemic, supply chain leaders have been focused on finding the right manufacturing hub and supply chain partners to maximize profitability. Traditionally global companies turned largely to China for most manufacturing, but the pandemic-related shutdowns that ground the supply chain to a near halt forced companies to accelerate their strategies for diversifying where they send manufacturing.  

That has produced some new winners on the global manufacturing scene, including Malaysia, the Philippines, Vietnam, and other countries across South Asia, notes veteran supply chain expert Steve Lustig, who has served key roles in manufacturing and risk mitigation at high-profile businesses including the Coca-Cola Co. and East West Manufacturing.

Supply chain pressures have also sped up the process of considering all offshoring options, including:

Nearshoring - involves the relocation of business functions to nearby countries or regions, often neighboring ones, to minimize logistical complexities and maintain closer collaboration. For U.S.-based companies that has meant a closer look at Mexico. Manufacturers gain greater control when they move their operations from China to Mexico. Goods travel a much shorter distance to reach the United States, and imports are less likely to be impacted by catastrophic snags like bottlenecks at ports, according to a report from Forbes magazine. Setting up operations in Mexico also can be less permanent than outsourcing to China. Establishing operations in Mexico brings companies one step closer to locating manufacturing back on U.S. soil as well.

Reshoring - Reshoring, on the other hand, refers to bringing outsourced operations back to a home country. Factors such as rising transportation costs, intellectual property concerns, and the need for faster response times have prompted businesses to reconsider the benefits of proximity and control over supply chain operations.

Friendshoring - Shorthand for the practice of relocating supply chains to countries who are allies and where the risk of disruption from political chaos is low. While most companies are not picking their factory locations from a list of allied nations, they are increasingly including geopolitics in their risk calculations, according to a report from the New York Times.

Tangled Geopolitical Web

With China the unequivocal global hub for manufacturing, finding alternatives has proven a complex exercise. India is an option, but their experience has not yet caught up with China, said Lustig. South Asia has benefited from the haste to find new partners. Tech giant Samsung set up manufacturing in Vietnam, for example, where there are fewer trade restrictions. But Chinese companies are also opening up factories in that country, further securing their global stronghold.

Countries the U.S. works well with include Mexico and hubs in Latin America and, while these locations are less expensive, they can lack the tech talent needed. It is also common for them to be locations where only final product is made, which means companies can’t unhook entirely from China.

U.S. government incentives are now focused on creating more final assembly factories on American soil, but that is unlikely to bring a critical mass of manufacturing jobs back to the states. It will also remain more expensive to host manufacturing outside of Asia, but companies are considering the overall cost of risk compared to manufacturing on new shores, said Lustig.

Finding Balance

Cutting offshoring risk and increasing the speed, resilience and agility of supply chains comes at a cost, but companies will have to strike a balance to stay ahead. Improved scenario planning, including solutions offered by companies like ketteQ, have become critical, Lustig notes. If a company is trying to decide whether to bring some of its manufacturing to Mexico and suddenly container prices spike, for example, ketteQ’s scenario planning solution can offer a significant advantage by allowing for real-time analysis and decision making. Supply chain operators can run thousands of scenarios to determine how to get an optimal supply chain partner mix and create more supply/demand certainty.

China isn’t going away, but companies have more and better tools, including technology, to aid them in making the best decisions, said Lustig.

If you are exploring the right technology partner to build supply chain planning muscle, reach out to ketteQ and let us help you get started.

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