We sat down with RTS International’s Director of Sales, Jonathan Emkes, to discuss how companies can rethink their sourcing strategies to accommodate the shifting supply chain. You can find his first-hand explanation in his LinkedIn article.
Global Supply Chain Chaos
The COVID-19 pandemic created significant disruptions in the supply chain that will be felt for years to come. Many of these disruptions stem from pandemic-related restrictions and closures in key manufacturing hubs in Asia and around the world. These delays and raw materials shortages, paired with a global consumer purchasing boom, created the perfect storm for a domino effect of shipping hold-ups and delays.
Nearshoring is the New Offshoring
Because of longer lead times and an increase in freight costs, companies that primarily use Asian production means are having to adjust their sourcing strategies to options closer to home, which is known as nearshoring. In Europe, some are moving to African and Middle Eastern sources, while those in the United States market are turning to Central America. While their full capacity might not be shifting, diversifying their market is a primary strategy that will become even more popular post-pandemic.
Benefits of Nearshoring:
- Lower freight and insurance costs that lessen the financial impact on all stakeholders, including the consumer
- Increased agility and flexibility to better meet customer demands
- More precise lead time prediction cycles, which can decrease overall lead times
- Fewer storage costs associated with holding backstock for longer lead times
The U.S. Shifts to Central American Manufacturers
Now more than ever, Central American manufacturers are seeing an increase in demand from U.S.-based buyers. The major increase in lead times and freight costs from Asian suppliers has led many U.S. companies to move at least part of their sourcing closer to home with Central American manufacturers. Additionally, labor costs and inflation in Central American countries have stayed relatively stable while rates in China and other Asian countries have risen.
Overall, nearshoring operations can provide companies with the opportunity for increased agility and diversification, which is expected to become a common practice to lessen supply chain disruptions in the near future.
Finding Financial Solutions
With the additional financial strain from the current supply chain, you may find your company needs an increase in working capital. RTS International has expertise with a variety of industries in more than 40 countries. Whether you’re a vendor or manufacturer, we can help you find solutions that will give you additional working capital. We focus on transparency and visibility with our clients and partners, which is especially important in today’s market.