How to Evaluate a Nearshoring Strategy 

For years, and especially since the supply chain disaster wrought by pandemic shutdowns, U.S. companies have been forced to reconsider their relationship with Chinese manufacturers and suppliers.  

Whether an organization wants to remove all affiliations with China or simply expand possibilities within its supply chain to create balance, a China supply chain exit strategy is essential to mitigate risk.  

The Optilogic Cosmic Frog supply chain design solution gives you the data, insights, and tools to build a balanced, risk-resilient supply chain as you consider your China exit strategy.  

This article will guide you through the why and how of shifting from offshoring to a nearshoring strategy and how Cosmic Frog helps you build an optimal supply chain design for your organization.  

More Companies are Evaluating a China Supply Chain Exit Strategy

The traditional U.S. supply chain design model has centered on offshoring: relying on overseas manufacturers, specifically low-cost companies in China, to handle production and overseas shipping.  

Today, offshoring the supply chain to China has become increasingly risky due to: 

• Difficulty adapting quickly to consumer’s needs 
• Political tension 
• Economic shifts 
• Disruptions fueled by increasing wages for Chinese workers  
• Long lead times 

These factors have led U.S. companies to reconsider their supply chain strategies and explore more optimal ways to connect the nodes in their supply chain design. 

Source: Deloitte

Now, companies realize the importance of diversifying their production to reduce their reliance on China. This diversification doesn’t necessitate a complete exit but allows organizations to create a plan if China is no longer an option or if they need additional providers or production facilities.   

This is the appeal of nearshoring: companies are identifying new ways to have their product closer to market, allowing them to increase agility and flexibility and react to market changes, all while reducing various risks associated with offshoring.  

Data source: McKinsey
Image source: Axios

Your organization must ask the pressing question of present-day supply chain design: What are the best providers to work with, and what sourcing strategies must we implement to secure great partners?

As you build a supply chain based on a nearshoring strategy, you must understand the impacts of the new nodes within your supply chain and how they can improve resilience while reducing risk.  

Nearshoring Strategy in Supply Chain Design

Nearshoring allows you to achieve your organizational goals while significantly reducing supply chain risk. But risk isn’t the only factor affected by your China exit strategy. Nearshoring allows you to: 

• Reduce transportation time 
• Improve cycle time 
• Improve overall lead time  
• Optimize your reaction time to customers  
• Achieve better service levels  
• Reduce time to bring your product to market 

It’s also driven by consumers’ need for continuous innovation and to have the products when and where they need them.  

When creating a nearshoring strategy, you must consider: 

• Choosing the right locations  
• Lead time 
• Labor availability 
• Associated supply chain rules 
• End-to-end cost 
• Overall risk 

Each of these variables requires you to evaluate cost, service, and risk. You need the right tools to understand how those variables are connected and their impact on each other, and that’s where the Cosmic Frog supply chain design solution comes in.  

The Risks of a Weak China Supply Chain Exit Strategy or Not Having One at All

Remaining wholly dependent on China ignores significant risks to your supply chain. Having a China exit strategy is no longer an option; it’s not a question of if you have a plan, but “what does your exit strategy look like?”  

We highlight the importance and necessity of your exit strategy below.  

 1. Service

Nearshoring operations drive service to your customers. It empowers you to control your organization’s position in the market without the constant risk of inevitable and devastating supply chain disruptions associated with China.  

When you experience issues within your supply chain, service suffers, impacting the customer experience, their relationship with your company, and your profits.  

 2. Risk

As we’ve explored, risk is a significant factor in supply chain design. Short, medium, and long-term risks affect your company differently, but they will impact how you develop products, innovate, and find the best suppliers for your needs.  

Your supply chain design allows you to strategically connect all the sources and resources at your disposal to receive––and deliver––the best service.  

As we saw during COVID, if you don’t balance your supply chain design for risk, cost, service, and sustainability metrics, and if you’re relying on one supplier, you’re putting yourself at the mercy of one source. And if that source is shut down, your delivery, service, and profits are as well. 

3. Innovation and Analytics

Organizations can account for all the above variables with the right tools and analytics. But without innovative supply chain design solutions, you’re stuck building supply chains with old, irrelevant data that can’t deliver the scenario modeling required of today’s market.  

Today, we have more data we can evaluate to leverage decisions surrounding nearshoring decisions within supply chain design. And the more complete data at your fingertips, the better quality the solution is and the easier it is to implement. You need the right design tool to acquire this data and insights.  

 4. Supply Chain Design as a Continuous Process

Optimizing your supply chain is not a one-time exercise. It’s a continuous process within your organization that allows you to build excellence and resiliency in your supply chain design. As you consider your China exit strategy, you need a fluid and continuous supply chain design approach that moves with you and your changing needs.   

Your organization constantly evolves and shifts –– sometimes weekly or daily. Making supply chain design a continuous development ensures you always have the optimal supply chain for your company.  

The Benefits of Building a China Exit Strategy with Cosmic Frog

As you consider, plan for, and implement your China exit strategy, you need the right tools to balance all factors within your supply chain: risk, cost, service, and ESG metrics. Cosmic Frog is the all-in-one supply chain design platform that allows you to analyze your options from every possible angle and optimize for the factors that matter most to your organization.  

Let’s look at the unique features that make Cosmic Frog your must-have tool for optimizing supply chain design and creating a balanced and effective exit strategy.   

 1. Risk Mitigation

If you’re leaving China only to invest in another country without labor availability or with a high-risk political environment, you’re making a lateral move. Considering risk is critical to a balanced supply chain design.  

Optilogic Cosmic Frog provides enables supply chain practitioners to analyze trade-offs across cost, service, and risk for different potential supply chain designs. With one click, Cosmic Frog automatically generates a risk score for every scenario you model in the software. We’ve packaged four technologies into one tool: network optimization, simulation, greenfield analysis, and risk and resiliency analysis.  

Using the Opti-Risk score computed for each facility and supplier, we can identify potential disruptions that could impact your supply chain, including natural disasters or labor strikes. With a customized risk profile, you can anticipate risk and disruptions and make supply chain design decisions based on real-time data.  

Watch: China Supply Chain Exit Strategy Model Demo

2. Diversify Suppliers

Diversifying suppliers empowers you to reduce your reliance on one manufacturer or geographical region. Should disruptions occur with one supplier, you’ve got options that allow you to continue production and delivery to your customers.  

Cosmic Frog’s modeling tool allows you to optimize sourcing and understand the various angles in each scenario, answering your “what if” questions of supply chain design. Our tools enable you to explore potential outcomes based on supplier choices and then guide you on how to implement the next step best to diversify your supply chain.    

3. Implement a Short, Mid, and Long-Term Plan of Action

Most supply chain software provides you with data, and then it’s up to you to figure out how to put that data to work. Cosmic Frog not only provides real-time data, but it shows you what changes you need to make to achieve a specific outcome.  

Cosmic Frog helps you connect the different facilities and products, determine appropriate load sizing, and select the shipping methods you need to negotiate that will work best for your needs and goals.  

You’ll get directional answers for mid- and long-term plans, but you’ll also have the information you need to implement short-term changes that bring you closer to hitting your KPIs while existing within the process you’re currently running.   

Supply chain design is not a one-and-done task. Cosmic Frog sets you up for success in the present, mid-term, and ten years into the future with continuous supply chain optimization that addresses your needs and goals on any given day. 

4. Global Resources and Insight

In addition to a powerful cloud-based platform, Cosmic Frog has brought together the industry’s most impressive team of knowledgeable, experienced experts to help you along the way: 

Our team has 200+ combined years of experience in supply chain design.  

Our global presence allows us to retrieve relevant logistical details, explore the various implications of that data, and understand how to add those specifics to your models.  

5. Access to External Data

Cosmic Frog’s connection to external data drives our performance. As you create your supply chain design, you will need various data to include in your analysis:  

• Labor availability and cost 
• Land availability 
• Natural disaster probability and risk 
• Economic and political risks  
• Tax and tariff

You must consider and incorporate these factors into your design, all of which are housed in our resource library. We have all the information and considerations you need to evaluate the data efficiently and accurately to create your optimal supply chain design.

6. Hyper-Scalability

Your organization will evolve. Cosmic Frog grows with you. Our cloud-based platform runs with greater power and efficiency than any other program.  

Hyper-scalability is at the core of our platform, allowing Cosmic Frog to deliver thousands of different scenarios simultaneously with one click. In an instant, you can understand the variations of each scenario and how to change your plan moving forward.  

If you’re ready to get out of China, model your supply chain strategy in Cosmic Frog for real-world options that allow you to make moves without sacrificing your organizational goals or priorities.