Dave Blanchard For Mh L Blog 6232605bd96b3

Many Retailers Say They've Never Even Heard of Nearshoring

June 27, 2012
Nearshoring gets a lot of press these days, most of it favorable, because after all, who's anything bad to say about manufacturing jobs (admittedly, lower-paying assembly type jobs, usually) coming back to the United States, or at least to North America? ...

Nearshoring gets a lot of press these days, most of it favorable, because after all, who's anything bad to say about manufacturing jobs (admittedly, lower-paying assembly type jobs, usually) coming back to the United States, or at least to North America? But then again, maybe just because we write about it a lot here, we think everybody is writing about it, and more to the point, reading about it. I say that because in a recent survey of MH&L's readers, as well as our sister publications, National Real Estate Investor, Retail Traffic and Multichannel Merchant, more than half of all respondents (58%) said they were “not at all familiar” with the concept of nearshoring. And only 3% said they have made strategic decisions based on nearshoring.

As defined in this highly recommended book, nearshoring occurs when a company opts to establish (or reestablish) production facilities within its own hemisphere rather than in a low-cost country. The reasons for doing this are many, but chiefly companies have finally caught on that there are immediate savings involved when you manufacture your own products in your own country, including lower logistics costs, closer access to alternative suppliers should a supply chain disruption occur (companies are acutely sensitive to risk management as a result of the Japanese tsunami and earthquake), and a realization that labor costs are on the rise overseas, particularly in China.

So why then did so few of the survey respondents remember even hearing about this trend? Well, the answer probably lies in what industry these people work in. As you might have guessed from the names of the other magazines we teamed with on the survey, we targeted senior executives at retail companies. And for these retailers, the biggest trend they've seen over the past five years has been the growth in online sales, as retailers shift toward multi-channel selling. These days, nearly all (92%) retailers sell their products online, 68% maintain brick-and-mortar stores and 64% utilize catalog sales.

According to Kris Bjorson, who heads Jones Lang LaSalle's Retail/e-commerce Distribution Group (Jones Lang LaSalle also participated in the survey), “With multi-channel selling comes a major focus on retail distribution, and how to get from ship to shore to store or your door as quickly and as efficiently as possible.” Retailers are reacting by adding complexity and flexibility into their supply chains, while reconsidering their store footprints and total inventory levels. “We're seeing that in each sector one retailer is evolving e-commerce faster than others,” Bjorson explains. “They are adding to their e-commerce infrastructure while trying to optimize their store footprints.”

Online sales have increased an average 50% over the past five years, according to the survey. What I found interesting (and here's a big opportunity for the supply chain software vendors out there, as well as 3PLs) is that when asked which tools they use to predict and manage spikes in demand, more than three out of four respondents (76%) said they rely primarily on historical demand, the same method that's been used since retailing was first invented. Only 24% said they use specialized modeling software.

In terms of warehousing technology, retailers are mostly users of WMS (warehouse management systems) technology, with 43% of the respondents having a WMS. After that, the numbers drop dramatically: 19% use an ERP system, 17% use RFID, 17% use distributed order management software, and 16% use a TMS (transportation management system).

Here's the punchline: When asked how their utilization of distribution technology has changed over the past five years – the same five years where respondents said their online sales have increased by 50% -- exactly half (50%) said nothing has changed… they're still using the same systems and processes they used back in 2007. When confronted with rising costs, 61% said they pass the cost along to customers, rather than utilizing a supply chain strategy (46% said they change their supplier source, and 31% said they consolidate suppliers).

It's always risky to draw too many conclusions from a single survey, even one that cuts across a number of different magazine readerships plus a well-known third party like Jones Lang LaSalle, but it's pretty clear that in the retail world right now, there are supply chain have's and supply chain have not's. The response to e-commerce is widening the gap between those retailers who understand current trends in globalization and supply chain visibility and those who are sticking to the tried-and-true, even if those methods date back decades if not centuries.

As my colleague, David Bodamer, editorial director of National Real Estate Investor, notes, “No longer is distribution just about supplying a network of shops stocked to the gills with goods. Instead, it's also about internet order fulfillment. It's about a showroom model and carrying less merchandise. It's the evolution of the sector.” It will certainly be fascinating to watch the shakeout that occurs from the move to multi-channel retailing.

Related Articles:

Where in the World Could You Be?

eCommerce Consumers Prize Easy Returns

About the Author

Dave Blanchard | Senior Director of Content

During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeek, EHS Today, Material Handling & Logistics, Logistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2021), which has been translated into several languages and is currently in its third edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

Latest from Chain of Thought

Photo by David Adams U.S. Army Corps of Engineers, Baltimore District
#203157943@Phuttaphat Tipsana| Dreamstime
Using AI to Reconfigure a Robotic Warehouse