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The Impact of Reshoring and Nearshoring in Retail

The drivers and factors that made offshore manufacturing cost-effective have changed with the costs of energy and, proportionally, the cost of transportation rising. Massive supply disruptions due to the lingering effects of the pandemic have accelerated the adoption of resilient supply chains that are based on reshoring (bringing manufacturing operations back to the country of origin or home country) and nearshoring (bringing manufacturing operations closer to the point of use, which is often a neighboring country with lower labor costs). In either case, the supplier or manufacturer will be moved from offshore and restabilized in a new, closer location.  In this piece, we take a look at the impact of reshoring and nearshoring in retail for supply chains. 

Reshoring and Nearshoring in Retail 

Apparel has already seen a shift to utilizing nearshored factories, and that ecosystem is expanding. The footwear industry is on the horizon for the same reasons. This trend will continue into other retail product segments as well, with United States companies bringing workforces and supply chains back on shore at a historic pace. In fact, American businesses plan to reshore, or return to the United States 350,000 jobs this year, according to a report published in 2022 by the Reshoring Initiative. That would be the highest number on record since the Reshoring Initiative started tracking the data at its founding in 2010.  

As supply is reshored, retailers have an opportunity to improve supply chain operations and accelerate both fulfillment and value creation for their customers. So, what impact does this trend have within the retail supply chain? Below, we explore reshoring and nearshoring across four dimensions: Product Lifecycle, Processes, People and Systems. 

Product Lifecycle: When you offshore manufacturing and at times have months of inventory in transit, it must be carefully scheduled with product promotions and lifecycle planning. The product lifecycle duration, which is directly dependent on the rate of innovation, is constrained by transportation time. Nearshoring/reshoring enhances this by allowing innovations to occur more quickly and, as a result, the product lifecycle is accelerated. Innovation is important because it’s impossible to compete directly on cost alone with low-cost countries producing the same products. Innovation must represent something new with more perceived customer value. Product lifecycle acceleration can be a significant competitive advantage by offering a more desired product to the market sooner, but only if the responsiveness of the supply chain can be increased as well. Seamless collaboration across supply chain partners now becomes especially important. 

Processes: Supply chain processes across the board are impacted from planning and procurement to production and fulfillment. In all these processes, not only is the rate accelerated, but also crucial activities that supply chain partners need to execute change as well. Not understanding the scope of the changes to these processes can lead to a failed effort, which can be extremely expensive. Abandonment can result from attempting too much at once, disregarding other stakeholders in the decision-making process, or from any number of other significant errors. Successful reshoring/nearshoring needs to have a staged approach with well-established interim goals. Retail operations need to be closely coordinated with these goals to avoid supply chain disruptions. 

People: Finding people with the skills needed often represents the most critical bottleneck in achieving reshoring/nearshoring. Skilled jobs followed the production capability offshore. Now, combining the offshored jobs and new skills in highly automated manufacturing, and many suppliers face serious skill shortages. This challenge cannot be underestimated. Building the required skillsets is equally essential, and the lead-time for acquiring and training must be carefully evaluated. The skill loss from the retirement of older workers may result in knowledge that may not exist anymore. The United States is also suffering other skill shortages due to the Great Resignation and “Quiet Quitting,” so it’s all compounding into deeper supply chain skill gaps. When reshoring or nearshoring in retail, businesses should consider the potential requirement to import certain skilled workers and the need to develop training programs for specific jobs, potentially leveraging local colleges and technical schools. For retailers, when partnering with suppliers, considering this skillset issue is highly relevant. 

Systems: New systems are very frequently introduced when reshoring or nearshoring. For all new systems, especially for nearshoring, increased security risks need to be mitigated. Automation is often extensively proposed to cut manufacturing costs. Automation not only needs to encompass production but also decision-making. It’s important to not only assess what can be automated, and the benefits added, but also what can’t be automated. It’s extremely easy to overestimate what can be automated when we hear so often about the increasing capability of artificial intelligence (AI). This overestimation can lead to the abandonment of the reshoring/nearshoring effort.  

 As an example, Adidas opened its first robotic shoe manufacturing factor, called Speedfactory, in Germany in 2016, followed by a second factory in Atlanta, Georgia, in 2017 (nearshoring), with hopes to increase its output by one million pairs of shoes each year by 2020.  However, by 2019, Adidas called for cease in production at all Speedfactories due to an overestimation of its automated system’s capability to manage numerous shoe models and an underestimation of the skills required to support the system. Thanks to Adidas’s strategic plan, however, the company was able to leverage its technology elsewhere. 

More Than Just System Capabilities 

The need for increased system capabilities will not just be limited to the factory floor. There will be requirements across many areas at the enterprise levels. Since cost pressures are frequently increased from moving away from offshore suppliers, the capture of costing data so that razor thin margins are monitored increases exponentially in importance. Similarly, the responsiveness of supply chain management tools and integration with costing and financial processes represented in Sales & Operations Planning becomes essential. Due to the increased velocity, predictive analytics and control tower/supply chain alerts are needed to guide daily operations. 

While nearshoring and reshoring in retail can be challenging for retailers and represent significant risks that must be mitigated, it also provides tremendous opportunity to transform the enterprise and to provide rapidly increased innovation to the customer. In any case, it’s going to be a continuing supply chain trend and impossible to ignore for retailers in this decade. 

To learn more about our retail supply chain consulting services, contact us today. 

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Tags: Retail Planning and Execution, Supply Planning & Execution