Dun & Bradstreet: Managing the Risks of Nearshoring

In light of major global events, geopolitical issues and economic strife, supply chain risk management is being discussed and debated more now than ever before. 

Companies have been left scrambling for new, innovative or alternative ways to keep their operations running smoothly.

Among numerous strategies under consideration is nearshoring, which involves locating suppliers and distributors closer to an operational centre or a supply chain’s final destination.

Although using regional suppliers might mean incurring higher upfront costs, reducing travel time can bring savings and mitigate environmental risks. This is an issue which became apparent during the pandemic as entire nations were cut off from each other. 

Explaining why nearshoring has appealed to so many firms in recent years, Rosemary Coates, Executive Director at The Reshoring Institute, says: “Not filling orders or losing a supplier with no backup, seeing other [sourcing] constraints that were not there before… all of a sudden, [supply chains] became a much bigger decision, with a lot more variables and new risks introduced.”

However, while nearshoring is proving to be an effective risk management strategy for some, it also carries a number of inherent risks in itself.

A boost for supplier relationships

As Dun & Bradstreet, a leading global provider of business decisioning data and analytics, points out, reducing logistical costs is not the only favourable outcome from bringing suppliers closer. 

Supplier relationships may very well be enhanced if cultural or linguistic differences are less likely to present obstacles to meetings or discussions.

“Visiting nearshore suppliers in person is a more realistic prospect, and there’s really no Zoom substitute for handshakes, facility tours and shared meals,” reads Dun & Bradstreet’s report, entitled ‘How Nearshoring Impacts Your Supplier Risk Management Program’.

What’s more, overseeing inventory status and product quality is more straightforward when you can communicate with suppliers whose working hours overlap with your own. 

Nevertheless, organisations cannot afford to let their guard down or neglect thorough due diligence simply because their new supplier is located in closer proximity. 

The risks of nearshoring 

Regardless of the sourcing proximity, Dun & Bradstreet says these potential risks must always be considered, including when choosing a nearshore supplier:

• Geopolitical risk: Having a supplier in a nearby country doesn’t necessarily guarantee their working conditions will always be stable. Companies should monitor the political climate, national security, labour relations, economic uncertainty and monetary policies.
• Environmental risk: As the world warms at an alarming rate, natural disasters caused by freak weather events are becoming commonplace – and wreaking havoc on global supply chains. When assessing a potential nearshore supplier, it’s critical to understand how local climates might disrupt the manufacturing process and delivery of goods.
• Regulatory compliance: Adhering to local and international laws and guidelines is a huge challenge. It’s important to seek assurances that a nearshore supplier is adhering to regulations on health and safety and toxic materials, among others. 
• Quality control: Manufacturing standards can differ vastly across regions, as can customer satisfaction thresholds. Checks should be carried out by organisations to ensure potential suppliers can meet the standards set by their own business, industry and market. 
• Competitive factors: Nearshoring has the potential to increase dependency on suppliers which are also used by competitors. This risk can be mitigated by sourcing alternative suppliers.

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