Near-sourcing involves placing operations near the final product market, often due to rising costs in supply chains and labor. Benefits include cultural alignment, proximity, and reduced time zone constraints. It may involve relocating to a nearby nation.
Near-sourcing is a term used to describe a company that strategically places some of all of its operations near where its final products are sold. Typically, the term is contrasted and used to highlight the reversal of the trend of outsourcing low-wage manufacturing operations in developing countries. In near-sourcing cases, the company is often responding to rising costs in supply chains, as well as rising costs associated with sourcing labor in developing countries. Aside from mitigating the uncertainty of rising costs associated with outsourcing to offshore locations, there are a few other benefits associated with the economic trend. These include cultural barriers, proximity, time zone constraints and skills surplus where available.
Covering the full scope of near-sourcing, however, doesn’t always mean bringing operations back to where the company is headquartered. Instead, it could mean relocating or locating operations to a nearby nation that offers some sought-after benefits. For example, an automaker in the United States might decide to source operations near-source in Mexico, rather than outsource to China. What is inherent in the decision is finding the closest possible location to the product market that offers some or all of the above benefits while avoiding some of the escalating costs in the supply chain.
The benefits often sought and found in the process also help reduce expenses and costs while leveraging necessary resources that contribute to the overall mission of the organization. Cultural alignment with the business is often more easily achieved through near-sourcing due to human capital resources being familiar with the culture the business is in, including proficiency with the language used in that culture. Communication on many corporate projects between management and the project team is an ever growing concern. Constraints imposed by time zones make communication a laborious process, but near-sourcing provides a solution to ease the communication process by eliminating or reducing time zone constraints.
Proximity also facilitates communication by allowing various players within the company to meet on a regular basis when required. Traveling from the US to Canada takes only a few hours depending on your location, but traveling to China or Europe often results in a much longer flight time. Along with access to human capital that demonstrates the acquired skills needed to run the core operations of the organization, near-sourcing effectively avoids cost escalation in the supply chain and mitigates the risks associated with offshore outsourcing.
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