Manufacturing and the Developing Market

Four reasons why nearsourcing separates efficient, profitable supply chains from their counterparts


Customer Service: It used to be that emerging markets accepted second-class customer service levels. Last year’s products and long lead times were the norm. Market-specific product features were not considered to be an option. With the Internet being widely available, potential customers research products and they demand up-to-date features and service, including faster lead times. As more companies do business in global markets, competition can be fierce. Price, product features and time to market are all key components that consumers evaluate when deciding which product to buy. Mass customization, or producing products customized for a specific market, is the way that many companies have to compete. Nearsourcing is a valuable option. Manufacturing a product locally to service a local market has many advantages. For example, we’ve seen many companies execute postponement strategies to bring a base product into a region and then final market customizations can occur in-market.

Nearshoring is a fast-growing trend. But there are some hidden effects that it can exacerbate. Developing markets do not come readily equipped with well-established financially-stable suppliers. Supplier capacity constraints is one important issue. As manufacturers descend on promising new markets with high hopes of commercialization, the first thing they need to do is find manufacturing capacity. Building a plant takes a long time and is a risky venture in a new market. If the market doesn’t pay off, the company is stuck with a plant. Instead, companies prefer to try new markets by entering into a joint venture agreement with an existing company or by contracting with an existing manufacturer to build products. As many companies enter into a market simultaneously, existing manufacturing capacity is quickly consumed. We’ve already seen this in electronics manufacturing in Asia, for example. As capacity becomes constrained, suppliers can be choosy about which customers to serve.

It’s also important to assess supplier financial strength. When evaluating suppliers in new markets, financial stability is a key criteria. Many manufacturers created new “supplier risk managers” to keep an eye on supplier performance and to find creative ways to help suppliers be successful. For example, supply chain financing is gaining popularity. Using a manufacturer’s credit rating to help suppliers get financing helps all parties in the supply chain.

Nearsourcing continues to be a best practice for global manufacturers. All the contributing factors have momentum to last for the foreseeable future, particularly customer-service metrics that continue to be highly competitive. Customers in all markets are fickle and demanding. Creating localized products in-market is key.

On a similar note, many manufacturers continue to return operations to the U.S., an act commonly called reshoring. In some ways this is akin to nearshoring in the U.S., making products in the United States for United States customers. The U.S. has the capacity, trained resources and labor costs that remained steady or actually declined in some markets. Along with all of the other reasons for nearshoring, we expect reshoring to continue.

 

Diane Palmquist is Vice President of Manufacturing Industry Solutions at GT Nexus. The company provides a cloud-based collaboration platform that leaders in nearly every sector rely on to automate hundreds of supply chain processes on a global scale, across entire trade communities. Diane’s area of interest is creating supply chain technology solutions for global manufacturers.

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