Rise of Nearshoring and Digitalization in Supply Chain Management

Arthur Zaczkiewicz
·3 min read

Heading into the new year, increasing the efficiency and resiliency of the supply chain is a high priority for retailers and brands.

Consultancy Capgemini polled industry executives and found that 80 percent are looking to create more efficient supply chains as they face various challenges.

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The report detailing the results also noted that nearly 79 percent of those polled told Capgemini “they are actively diversifying their supplier base. They are no longer willing to keep all their eggs in one basket.”

Aside from building a resilient, diverse and more efficient supply chain, the report’s authors said companies are also stepping up efforts to nearshore. “Offshore procurement is expected to decline by 7 percent in dollar value over the next two years as nearshoring grows in popularity,” the report’s authors said. “Currently, 83 percent of the organizations we surveyed are actively investing in friend-shoring (the trade practice where supply chain networks are focused on countries regarded as political and economic allies).”

Capgemini said North America is leading this sourcing trend “as stronger trade ties emerge between the U.S., Canada and Mexico in line with the U.S.–Mexico–Canada Agreement [USMCA].” The researchers noted the U.S. “is also beginning to talk about friend-shoring with countries such as India.”

With nearshoring, the report said there were many benefits — including creating a more sustainable supply chain.

“Reduced transportation directly impacts an organization’s carbon footprint while also allowing for greater scrutiny of suppliers and ensuring ethical manufacturing practices and working conditions are followed,” the 64-page report stated. “Organizations can benefit from more frequent physical interactions, resulting in greater trust and collaboration, better project management and increased oversight.”

Additionally, the report found that of the organizations polled, 86 percent “realize
that ethical and responsible sourcing, transportation and manufacturing are key for gaining a competitive advantage,” which compares to 69 percent in the survey conducted in 2020.

Nearshoring and friend-shoring also provides some protection from the impact of global events and macroeconomic challenges. “Logistical disruptions like the 2021 Suez Canal obstruction or supply disruptions like those arising from the COVID-19 pandemic can be more easily managed via nearshored supply chains,” the report’s authors said, adding that nearshoring also allows for “a more agile response to changing customer demand and reduces time to market.”

There are also cost benefits. “Upfront costs of supplier base redesign and relocation may be higher, but the overall costs associated with offshoring (including transportation, risk management, the opportunity cost of lost sales, trips made by executives) mean that nearshoring and friend-shoring could be financially beneficial in the long run,” the report’s authors said, also noting that nearshoring can reduce the need “for working capital by reducing in-transit inventory.”

Capgemini said that during the holiday season in recent years, “many retailers like Ikea and Walmart went to great lengths to combat supply issues — even hiring private cargo ships. With nearshoring, such extreme measures would not be needed.”

Also noteworthy is a push by companies to digitalize their supply chains. This means making tech investments for processes that include procurement, planning and operations, warehousing and logistics. The goal is to use technology to increase visibility across the supply chain. When asked if data is critical in successfully transforming their supply chain, 86 percent of respondents said yes.

But digital optimization doesn’t stop at the back end. Of those executives polled for the report, 66 percent said they focus on optimizing their product mix to bolster their sales.

Regarding investments across the entire supply chain, 58 percent of respondents said they plan to increase investments in the next 12 to 18 months.

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