Reshoring, Nearshoring and Backshoring: Choosing the Best Strategy for Successful Manufacturing
Initially, the #Covid19 pandemic, then the #lockdowns, followed by the energy crisis caused by the conflict in #Ukraine.
These various phenomena have led many #manufacturing companies to rethink and renew their #production and #supply strategies.
Electronic components and #microchips, in particular, involve the use of critical raw materials, such as Palladium, Rhodium, Platinum and Cobalt, which are now more difficult than ever to source due to geopolitical instability in countries such as #Russia, #China and #Turkey.
As well as wheat and other cereals coming from the countries of the ex-USSR, they are arriving late on the #market and at ever higher prices, with dramatic consequences on the agri-food chain.
Increasingly fewer companies are offshoring
Global #supplychains are increasingly interdependent and manufacturing industries are exposed to increasing risks.
To growing uncertainty we must add a considerable increase in #transportcosts, which makes it less convenient and less secure to #offshore in geographically distant countries.
In today's global era, companies are often faced with crucial choices in the production of their goods and services.
Three key strategies that emerge in this context are #Reshoring, #Nearshoring and #Backshoring.
These strategies concern the geographical location of #productionprocesses and supply chains.
In this article, we will explore the differences between these strategies and try to understand which one might be the best choice for companies wishing to gain a lasting #competitiveadvantage.
Reshoring
Reshoring represents the decision to bring production or certain company activities, which were previously relocated abroad, back to the company's home country.
This strategy is based on a number of motivations, including the desire to reduce supply chain risks, improve product quality, support local employment and strengthen the company's image as a supporter of '#MadeinItaly'.
Nearshoring
Nearshoring differs from reshoring in involving the re-location of manufacturing operations or services to a country that is close or geographically close to the company's main location.
This strategy is often chosen to exploit advantages such as lower costs compared to traditional offshoring, better supply chain management and greater cultural and linguistic affinity between the host country and the company.
Backshoring
Backshoring is a similar strategy to Reshoring, but with one key difference. Whereas Reshoring implies returning production activities to the company's home country, Backshoring implies bringing these activities back in-house, rather than outsourcing them to external suppliers.
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This choice can be motivated by the desire to have direct control over production, improve #efficiency and #quality, reduce #deliverytimes and ensure the security of sensitive #companydata.
What are the choices of Italian companies?
Many Italian manufacturing companies are reconsidering the choices made in the past that had led to the offshoring of certain production activities or supplies.
A study conducted by the Re4lt research group together with the Centro Studi Confindustria showed that 30% of companies that had delocalised have recently changed strategy.
Backshoring of production (partial or total) is the option chosen by 16.5% of companies that had previously opted for offshoring. 12% intend to bring back production currently located outside Italy, while 14% have opted for a change of country (Nearshoring or Furter Offshoring).
The decision to delocalise is made, above all, to contain #productioncosts, especially labour costs, as well as to ensure access to developing markets and critical raw materials.
The sectors most affected by the reshoring phenomenon are #clothing and leather goods, #machinery and #electrical equipment.
The main reasons for reshoring production or even bringing it back to Italy are:
Conclusions
In conclusion, the cascading effects of the Covid-19 pandemic, lockdowns, and energy crisis have prompted manufacturing companies to reevaluate their production and supply strategies. The scarcity of critical raw materials, geopolitical instability, and increased transport costs have put global supply chains at risk, pushing companies to seek alternative solutions. In this context, three prominent strategies have emerged: Reshoring, Nearshoring, and Backshoring.
As for Italian companies, many have reevaluated their offshoring decisions, with a significant percentage opting for Backshoring or Nearshoring. The decision to delocalize is often driven by cost containment, access to developing markets, and securing critical raw materials. The sectors most affected by the reshoring trend include clothing, leather goods, machinery, and electrical equipment.
In conclusion, the choice between Reshoring, Nearshoring, and Backshoring depends on various factors, including cost considerations, proximity to markets, and the need for quality control. Companies must carefully assess their specific requirements to make a well-informed decision that ensures a competitive advantage in the ever-evolving global market.
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