Moving manufacturing closer to consumer demand is one of the more important adjustments companies are making. Rising wages in Asia, the costs of shipping and transportation, and the need to accelerate time to market all are driving the emergence of nearshoring and re-shoring. One study recently conducted by Deloitte and The Manufacturing Institute found that re-shoring particularly is gaining favor among manufacturers. Some 49 percent of manufacturing companies would consider re-shoring at least part of their operations by 2020. Among the reasons cited are favorable logistics and supply chains in the U.S. (90 percent), the diminishing cost structure differential (87 percent), and increases in domestic demand (80 percent).
This is happening across all industries. The 2015 IDC Manufacturing Insights survey found that about one-third of high-tech companies are near-shoring to place production closer to the consumer, and about 40 percent of those surveyed plan to return sourcing to the U.S. or Mexico.
A survey of manufacturers from Peerless Research Group (PRG) also revealed that 46 percent of respondents have already engaged in or plan to nearshore within the next five years. Of those companies, 63 percent say Mexico is the leading destination, citing lower freight costs and improved speed to market.
The automotive sector has invested billions of dollars in what some have called the Mexican “Automotive Boom.” And it’s not alone. The electronics and industrial sectors are following suit, having determined that it makes sense to nearshore to a market that is the third-largest U.S. trade partner and whose cross border trade with the U.S. totals more than one billion dollars every day, according to the U.S. government.
Not surprisingly, the logistics industry has surged in kind. Truck and rail traffic between the U.S. and Mexico set record highs in 2014; the value of truck freight was up 8.8 percent year-over-year, according to statistics from the U.S. Bureau of Transportation Statistics.
In response to the activity on both sides of the border, the industrial sector has seen increased real estate investments in distribution centers, supply-chain logistics, even intermodal facilities that serve manufacturing operations and warehousing.
As of April 2013, Mexico had more than 200 industrial parks with some 322 million square feet of industrial buildings. Planned development of manufacturing plants for various industrial goods will generate some 800,000 20-foot-equivalent units (TEU) of export traffic, and generate need for 40 million square feet of warehouse space, notes the Journal of Commerce.
Infrastructure improvements, the Mexican economy and the strong dollar are key factors that have transformed Mexico into a more attractive sourcing market. To those experienced in nearshoring, the benefits beyond mere cost come as no surprise – geographic convenience, working in the same or proximate time zones, cultural affinity, a strong labor supply, even intellectual property protection – all comprise a matrix of advantages that have brought manufacturing closer to U.S. shores.
To take advantage of this strategy, you should first do your homework:
- Explore the market first-hand to determine whether nearshoring, re-shoring or expanding manufacturing to Mexico is a viable solution
- Work with a partner, 3PL provider or experienced vendor versed in cross-border operations
- Spend time in country, whether in border towns and big cities or the nation’s interior, to examine how operations, markets and even cultures might suit your specific needs
Part Three of this series will reveal why Taking Care of Your Customer’s Customer is the new way to approach getting the competitive edge.
Authored by Darcee Scavone
Darcee Scavone is Vice President and General Manager of Automotive, Aerospace and Industrial Supply Chain Operations for Ryder System, Inc. Ms. Scavone joined Ryder in 2005 and most recently served as VP and Chief Financial Officer for the Supply Chain Solutions segment. She has over 25 years of corporate and divisional finance experience with special emphasis on operations analysis, business development, and commercial strategy. In addition to chairing the Michigan hub of Ryder’s Women’s Leadership Forum, Ms. Scavone is an active mentor and women’s advocate, as well as a past member of Ryder’s Diversity and Inclusion Council. In 2012, she was named to the Profiles in Diversity Journal’s “Women Worth Watching” list.