What Is Right-Shoring?
Right-shoring is the placement of a business' components and processes in localities and countries that provide the best combination of cost and efficiency. It is a strategy in which a business analyzes the complexity and importance of required tasks and entrusts their completion with the most suitable workforce, regardless of location. Right-shoring may involve moving some operations to cheaper locations overseas or other cities or states while retaining core operations and processes at a local headquarters.
- Right-shoring refers to locating business' manufacturing operations in localities and countries that provide the best combination of cost and efficiency.
- The advantages of offshoring are eroding, which is leading to more companies bringing manufacturing operations closer to home.
- Reducing inventory costs is one of the primary benefits of right-shoring.
Right-shoring requires a business to maintain a balance between the work types that can be outsourced overseas and the ones that should be kept domestic. Commonly, less complex types of work and work that carries a lower level of importance can be shifted abroad, while complex and important types, or ones that require extensive customer interaction, are kept at home.
When considering a right-shoring strategy, manufacturers need to determine how to adjust their supply chain operation and maintain or improve competitiveness.
Right-Shoring vs. Off-Shoring
For many years, companies used offshoring strategies to control costs. However, the advantages of offshoring are eroding, due to rising wages in overseas locations, volatile fuel costs, global security concerns, and the worldwide economic crisis. As a result, many U.S. manufacturers and parts suppliers are starting the process of bringing operations back to the United States. In a sense, right-shoring is the new off-shoring.
In considering a right-shoring strategy, manufacturers need to determine how supply chain adjustments will affect their competitiveness and their ability to serve customers. In order to make the right decisions, companies must capture, analyze, and manage all supply chain costs to establish a total landed cost analysis.
Besides expenses like labor, raw materials, property, transportation, warehousing, and customs fees, companies must also consider indirect logistics costs. For instance, every country has a unique set of hidden costs in their locality, which requires an aligned logistical approach to operations.
Reducing inventory costs is one of the primary benefits of right-shoring. Lower inventories are more efficient to manage. Products best suited for this type of supply chain strategy usually have...
- Complexities that require a more hands-on approach from the manufacturer or company headquarters.
- A high level of intellectual property. Right-shoring can increase the ability of management to provide oversight and secure valuable intellectual property.
- Logistical challenges related to size and weight, which is a major factor in shipping costs. Such products might include copiers, televisions, and auto parts.
- Proximity to raw materials. It may make sense to bring production closer to the source of raw materials, rather than shipping the materials overseas.
- Short lead times. Closer manufacturing operations bring the opportunity to shorten delivery times and increase responsiveness enough to offset the advantage of offshoring.
Companies can choose to work with third-party logistics providers to develop a supply chain strategy that provides the optimum value to the business. The right third-party logistics partner can help manufacturers claim a clear competitive advantage.