What is nearshoring?
Nearshoring has been a burgeoning trend in fashion production for a few years now, as the industry looks to ditch an outdated sourcing model criticized in a recent McKinsey report as “characterized by long lead times, maximizing order sizes, and low flexibility.”
So what is nearshoring? And what benefits does it offer fashion companies?
What does nearshoring mean?
To understand what nearshoring is, it helps to start with a more familiar term — outsourcing.
Outsourcing involves hiring an outside organization to perform certain business operations. In many cases that organization will be in a country with lower labour costs (as is common with fashion manufacturing). In these cases, the practice is more specifically known as offshoring, as outsourcing doesn’t exclude hiring domestic organizations.
Nearshoring is essentially offshoring-lite. It means bringing offshored operations closer to home and/or the point of sale. For example, a French fashion label might hire a manufacturer in Portugal or Italy to make clothing previously produced in China.
Nearshoring vs onshoring vs insourcing
Nearshoring shouldn’t be confused with onshoring and insourcing. Onshoring means reassigning tasks specifically to outside organizations within the same domestic borders. Insourcing goes a step further, assigning operations to company employees that might otherwise have been outsourced.
Nearshoring, on the other hand, generally means continuing to offshore, just with less distance between the client and supplier. This can provide a better risk–benefit balance, utilizing the advantages of both onshoring and offshoring.
The advantages of nearshoring
It may not be immediately obvious why fashion companies would relocate production to countries with higher labour costs (albeit usually still lower than in their place of domicile). However, there are several benefits to nearshoring:
Faster lead-times
According to McKinsey, nearshoring “offers far more speed and full flexibility in design by eliminating long lead-times in design processes due to shipping.”
In other words, because fabric and garment supply chains are relocated closer to the point of sale (i.e. the market in which the products are sold), the time between products entering production and reaching retail is cut considerably. This enables brands to better forecast demand and respond more quickly to changing trends.
Supports innovation
Those faster lead times will be particularly suited to ecommerce, particularly in supporting the rise of on-demand production.
On-demand production has potential to solve some of fashion’s most pressing problems, including excessive inventories and high return rates. However, since it involves producing clothes only after they’ve been purchased, there are understandable concerns about how consumers will respond to longer delivery times, even for higher quality, fully customized products. Moving production sites closer to the consumer-base will go a long way to mitigating that downside.
Protects against risk
Moving production closer to home may offer some protection from an increasingly volatile political climate, particularly if nearshoring is coupled with a decentralized network of micro-factories. Fashion companies will be less susceptible to geopolitical risks like trade tariffs and embargoes, strikes and uprisings, and future regional lockdowns, as well as the economic fallout from natural disasters.
Better for the environment
Of course, shorter distances mean less fuel used in shipping. And not just in the product’s journey from manufacturer to store, but potentially also the shipping of raw materials like cotton and metal to be made into fabrics and small wares like buttons and zips. The reduction in distance between headquarters and manufacturer will also increase transparency in the supply chain, making it easier for brands to ensure their own environmental standards are being met.
