Offshoring, Reshoring, and Nearshoring Manufactured Parts

Author: Jay Snow
Published: April 16, 2014

NearshoringNearshoring, as strategic ways to be more competitive  – specific to estimating the cost for the parts the make or buy.

The decisions they stimulate are inclined to reduce manufacturing costs, increase part quality and improve the delivery of parts and products for competitive advantage – a.k.a. more profit.

Outsoucing – the shoring influence.
It is the movement of internal business processes to an external organizational unit.

Offshoring – the relocation from one country to another.
In light of increased transportability, fractional labor wages, and the potentials for lower operations costs, offshoring became the leader in the shoring movements. It is the relocation of a business process from one country to another. Initially, while for services such as IT, accounting, and payroll, it soon developed and included a wide variety of manufacturing processes, as well.

Reshoring – bringing manufacturing back.
As foreign countries began to develop their manufacturing economies and as labor rates began to skyrocket, the practice of reshoring, (or inshoring) was recognized. Identified in this process, the total cost of ownership (TCO) was beginning to outweigh the initial savings as compared to the perceived lower cost of individual parts. Reshoring (inshoring) is the practice of identifying that the TCO is less profitable and that decisions are made to bring manufacturing back to the location from which they were originally offshored. Check out the TCO estimator located  on Reshorenow.org and explore possible cost savings for choosing to make parts that do not include offshoring.

Nearshoring – transfering business to nearby countries.
Another derivative form of outsourcing, nearshoring is the relocation of business processes to (typically) lower cost foreign locations, but in close geographical proximity to the outsourcing company.

According to John T. Costanzo, in his article "Near-Shoring Takes Hold" (as posted on "Manufacturing Today"), "Apple joins a growing list of North American businesses – General Motors, General Electric, Microsoft, Caterpillar and Ford among them – that have recognized that overseas offshoring is no longer the good deal it once was, nor does it comport with today's supply chain demands."

For example for the U.S., nearshoring refers to setting up a manufacturing shop in Mexico and/or Canada or conversely for U.S. OEMs purchasing from Mexico or Canadian suppliers, as opposed to doing business with offshore manufacturers.

Adrienne Selko and Tonay Vinas wrote in their article, "Nearshoring Fuels Mexican Manufacturing Growth" (as posted in IndustryWeek) how they claim, "the Aerospace industry increased manufacturing in Mexico by 25% (to $4.5 billion) as opposed to just 15% annual growth for other industries (as noted by World Bank.)"

As with every business decision its important to fully evaluate the environment. For example, Mexico had been a safe haven but in recent years, violence and drug-related activities along the border draws concern for nearshoring decisions.

If your company is considering nearshoring, you may want to read Adrienne Selko's article, "What to Consider When Nearshoring in Mexico" (as posted in IndustryWeek) where the article discusses nearshoring in more detail.

What are your thoughts about any of these strategic shoring practices?
Do you work at a company engaged in offshoring. If so, has your estimating team explored the TCO Estimator to identify if reshoring should be your next strategic move. Has your team recently estimated the total cost of ownership for having parts made offshore competitively as opposed to made more locally?

Please share an offshoring, reshoring and/or nearshoring experience, either as a manufacturer or as a buyer. On the other hand, feel free to offer comments about estimating parts made in your shop vs. an outsourced manufacturing supplier.