In the global supply chain, sourcing has become an effective strategy for profit. Near-sourcing as a solution can be regarded as an alternative to the cost-cutting approach of firms, as it increases their flexibility and control over supply chain operations.
This article will explain the influences of near-sourcing on global supply chains, showing why it is such an optimal strategy. Also, what could be seen as the possible advantages or disadvantages of applying this strategy? Learn what factors you should keep in mind for near-sourcing.
Benefits of Near Sourcing
Near sourcing offers several advantages to global supply chains:
- Reduced transportation costs: In near sourcing, the distance is of short lengths, so transport costs are reduced.
- Faster response times and improved flexibility: Near-sourcing has advantages in terms of faster response times in the supply chains and provides quick flexibility.
- Working together and communicating more closely with the supplier: Near sourcing provides an opportunity for companies to be closer and communicate more effectively with suppliers.
- Lower risk: Less risk makes for greater strength. Near-sourcing also reduces the disruption risks that would otherwise drag down supply chain resilience.
Challenges of Near Sourcing
- The higher cost of labor and production as compared to the offshore sites.
- Shortage of skilled labor in near-sourcing areas.
- Language and cultural issues that may arise when dealing with local suppliers.
- Having a smaller supplier network and few sourcing choices
- Geopolitical risks and instability in the nearby countries of origin
Risks of Near Sourcing
Despite its benefits, near sourcing also presents certain risks that need to be considered:
- Dependence on a limited number of suppliers: ‘Near sourcing’ includes a relatively small pool of suppliers and often tends to increase the vulnerability of the supply chain.
- Possible intellectual property theft or leakage of confidential information: There is a risk of leakage of intellectual property or confidential information when using suppliers within the near-sourcing nations.
- Supply chain disruptions due to natural disasters or local conflicts: The near sourcing regions might be vulnerable to natural disasters or local wars that can lead to supply chain disruptions.
- Higher dependence on transportation infrastructure in near-sourcing countries: Sourcing close requires efficient transportation infrastructure and timely delivery of products.
Factors to Consider When Choosing Near Sourcing Partners
To ensure that your supply chain runs smoothly and effectively, you should factor in multiple criteria while picking a near-shore partner:
- Assess the production capacity and technology of the potential partners in order to determine whether they have the capability to meet your business requirements.
- You’ll want to have cultural alignment between your company and a nearby sourcing partner. In this way, communication can be facilitated, and collaboration is also much easier.
- Assess a supplier’s financial soundness as well as their own assessment of the near-sourcing partner.
- Assess the ability of your near sourcing partner to manage such risks as geopolitical instability or environmental conditions.
Near-sourcing can have a powerful impact on global supply chains, providing many opportunities and threats alike. So while lowering transportation costs, raising flexibility markedly, and coming into closer alignment with suppliers, it can be worth higher labor costs. Where there is an adequate labor supply, and there is also the difficulty of language and culture problems.
Near-sourcing can, before anything else, enhance control, resilience, and efficiency in global supply chains, but if risks are not managed well enough, then the ability to manage risks is crucial.