Over the past three decades, we have witnessed a shift in manufacturing sourcing strategies, moving from domestic to global, to near-shoring, and now back to domestic sourcing.

Cost-Based Competition
Between the late-1980s and the 1990s, the go-to sourcing strategy focused on challenging U.S.-based suppliers to increase efficiency and lower their product prices.  Lean manufacturing, just-in-time, and the Toyota way were common buzzwords. 

Haunting memories of Ignacio Lopez and his cost-cutting pressures still linger in the more seasoned members of the automotive parts supplier community.  The heart of this strategy was U.S. production and U.S. supplier versus U.S. supplier competition.

Off-Sourcing
As the calendar entered the 21st century, the focus shifted. The new buzzword became the ‘China price”. Manufacturers focused on reducing their per-unit costs. This unit cost comparison became the bellwether measure, and the sole focus on unit price encouraged manufacturers to relocate production from the USA to low-labor-cost markets, such a China, to achieve these lower unit price targets. This low-unitcost sourcing strategy was the go-to strategy for the next 20 years.

However, as time progressed, it became increasingly evident that there was more to “cost” than just per unit price.

Other factors came to light, such as:

• Transportation costs
• Transportation availability and port logistics
• The level of investment in products throughout the entire supply chain (at the port of origin, on the ship, at the receiving port, on the truck, and at the warehouse)
• This extended supply chain required a change in philosophy from just-in-time to just-in-case inventory buffers.
• The heightened inventory investment brought implications of any product design change and related prior production product scrap.
• As more production was sourced abroad, the labor costs in the low-cost countries began to rise.
• Improved production, assembly, and material handling and robotic automation solutions reduced the advantages of low-cost labor markets.
• Continued evidence of the lack of intellectual property rights’ protections in China
• Geo-political concerns regarding the stability of the political relations between countries and their related impact on business operations.
• While these factors began to be incorporated in the sourcing calculus, production sourcing continued to have a global focus. Changes to the sourcing process were relatively minor an included enhancements such as relocating production from China to other low-cost Asian countries, including Vietnam, Indonesia, Thailand, and India.

Near-Shoring

The major shift in sourcing strategy came with the advent of the COVID-19 pandemic. Government restrictions regarding what products could and could not be exported from China became real. While the most visible sectors of impact were personal protection products (such as masks and gloves) an certain pharmaceuticals, the potential negative implications of this new practice impacting other sectors became more apparent.

An additional factor that impacted the sourcing process at the time was transportation disruptions and related inflation. Port congestion, labor shortages, container shortages, and freight rate volatility all contributed to the issue. For example, spot rates for 40 ft containers from China to the U.S. West Coast rose from $2,000 to as high as $20,000 in some cases.

As these factors were given greater weight in the sourcing equation, the focus shifted from off-shored production in Asia to moving production to a location closer to the end market, also known as near-shoring. Seeking the best of both low costs and closer proximity to the end consumer resulted in a new go-to location; Mexico was the logical choice.

Mexico offered several advantages, including a low cost of labor, a sizable pool of engineering and managerial-level personnel, and closer proximity to next-level production and the end consumer, as well as trade-related coverage under the USMCA trade agreement.

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