Is the Industry Ready for Off-, Right- and Near-Shoring?
The high-tech industry has spent the better part of two decades working the kinks out of a supply chain that expanded rapidly into China. In addition to the bureaucracy the move entailed – many companies had to partner with a Chinese company in order to literally get a foot on the ground—the logistics of designing a product in one region and manufacturing it in another (with a 12-hour time differential) challenged the best supply chain minds and technologies.
Now, according to an annual survey by UPS, Change in the (Supply) Chain, manufacturers are struggling with a mix of strategies that include offshoring, right-shoring and near-shoring. Nearly half of the high-tech manufacturers surveyed by UPS are utilizing offshoring; 45 percent are utilizing right-shoring; and 35 percent near-shoring. (Multiple responses were allowed.)
Of these three strategies, UPS identifies near-shoring—moving manufacturing and/or assembly closer to the location of demand– as the trend to watch. This strategy is likely to see the most growth in the near-term. Thirty-five percent of high-tech logistics decision makers globally are planning on near-shoring, up 25 percentage points from 2010.
The shift isn’t exactly new, UPS points out: 68 percent of survey respondents began moving manufacturing closer to demand two years ago. This year, 38 percent say they plan to move assembly closer to demand. Looking even further ahead, 20 percent of companies are likely to add assembly facilities closer to demand and 23 percent are likely to add manufacturing.
This trend has significant implications for the component makers that supply high-tech OEMs and the distributors that manage inventory and ship orders to manufacturing lines. Both of these constituencies followed their customers to China at a significant cost. Many suppliers established manufacturing plants in the Far East and distributors acquired companies that conducted business in China. Although it is unlikely companies will dissemble their Asian infrastructure, near-shoring comes with its own challenges, UPS said.
Similar to the offshoring trend, near-shoring faces some barriers. The location of key suppliers is one barrier to near-shoring: many suppliers went to China to take advantage of lower costs and closed facilities in other regions. In 2013, the top barrier to near-shoring was the benefit of low-cost manufacturing, which companies didn’t want to give up. That has dropped to fourth on the “barrier” list. The other two leading barriers this year: manufacturers have a fixed infrastructure that is not moveable, and their current sourcing footprint best supports their anticipated demand.