How Can High-Tech Firms Improve Customer Service Through Nearshoring?

March 17, 2014
QUESTION: How Can High-Tech Firms Improve Customer Service Through Nearshoring?

Look beyond low-cost sourcing to improve overall supply chain performance.

Companies that sell and produce high-tech products are taking a more strategic approach to their supply chain strategy. A growing number of these firms see the value in nearshoring, the practice of bringing production closer to demand. The 2013 UPS “Change in the (Supply) Chain” study, conducted by IDC Manufacturing Insights, highlighted nearshoring as one of the top supply chain trends impacting high-tech firms last year.

Companies responding to the survey cited improved customer service, better control over quality and intellectual property as well as manufacturing diversification as the top reasons to nearshore. Overall, 27% of survey respondents said they’re actively considering nearshoring, a 170% increase from 2010.

Many high-tech firms are partnering with logistics providers and other supply chain experts to more effectively manage their evolving supply chain strategies.

Here, Ken Rankin, director of high-tech marketing for UPS, discusses trends in nearshoring and how they impact high-tech companies.

Why is nearshoring growing in popularity among high-tech firms?

They see an opportunity to improve their service levels by bringing production closer to demand. Reduction in lead times is a key metric high-tech companies are focusing on as they strive to make their supply chain more customer centric. Moving production and assembly closer to the final demand clearly enables high-tech companies to get products into the hands of their customers more quickly, preventing stock-outs and potential lost sales. 

 High-tech firms also want to diversify their supply chain to reduce risk and want more control over quality and intellectual property (IP). Each country has different IP rules and regulations, and many high-tech firms see more favorable and stricter IP protections in the U.S. compared to some of the Asian countries. Also, the cost benefit of outsourcing to China or other low-cost manufacturing countries may not be as compelling. 

How does nearshoring help high-tech firms reduce their risk exposure? 

Over last few years there have been some pretty big manufacturing shocks. Three years ago there were floods in Thailand. That shut down some supply chains in the high-tech space. The tsunami in Japan caused some challenges in supply chains. Neashoring provides an opportunity to diversify manufacturing. You often hear about diversification of a financial portfolio, but it’s also important from a manufacturing and supply chain perspective to reduce risk. 

How can logistics providers help high-tech firms implement their nearshoring plans?

To get product across the border, there’s sometimes a little bit of red tape when it comes to customs brokerage. There are always changes underway in terms of what products can come across the border and in what quantities. Logistics providers can help guide customers on the proper forms and paperwork that need to be submitted prior to the goods crossing customs. By having that seamless customs brokerage, companies can reduce days in the supply chain and ensure those goods get to the end consumers on time and in-tact. Software services are also available to high-tech firms that provide up-to-date information about the latest cross-border trade regulations and requirements.

Do you believe more high-tech firms will consider nearshoring in the next five to 10 years?

Over the next five to 10 years, you will see a slow but steady growth in nearshoring as more companies re-evaluate their network design. The “set it and forget it” mentality of simply chasing the lowest-cost labor that we saw in the 1990s and early 2000s is beginning to shift. Some companies have learned a hard lesson from putting all their eggs in one basket.

High-tech supply chain managers are taking a broader look at their network design and factoring other critical elements like lead times, manufacturing diversification, intellectual property, product quality and global demand demographics into the total supply chain equation.  For some, that equation will lead them to begin returning some manufacturing and assembly closer to final product demand.