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Nearshoring is moving faster than expected among small businesses

Capterra found that 88% of SMBs are shifting supply chains closer to home.

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Photo by Paul Teysen on Unsplash

After two years of supply chain chaos, small and medium-sized businesses are signaling that they want to keep their suppliers closer. It’s a shift that is happening more quickly than experts expected.

According to new research from software review platform Capterra, 88% of 300 supply chain professionals at small and medium-sized businesses surveyed said they plan to or currently are switching at least some of their suppliers closer to the US in 2023.

This gives credence to the talked-about trend of nearshoring, in which companies move their networks geographically closer. Capterra indicated that the shift was expected to happen over the course of five or more years, but the survey results indicate that it is being sped up.

“The biggest surprise in the research is that nearshoring is happening much faster than predicted at small businesses,” said Olivia Montgomery, associate principal supply chain analyst at Capterra, in a statement.

This comes as companies recalibrate following the supply chain bullwhip of the pandemic that left goods sitting on ships in 2021, only to see multiple seasons arrive at once and cause an inventory glut in 2022.

The bottlenecks have mostly eased, as the latest reports have indicated imports into the US are now falling. The famous line of ships off the major West Coast ports in Los Angeles is also gone, as carriers are now sending more cargo to the East Coast.

But complications remain. Extended COVID lockdowns in China have continued, while trade and political relations with the country at the center of global manufacturing remain tenuous. Meanwhile, the war in Ukraine showed the vulnerability of the global economy to sudden shocks, and inflation this year has driven up transportation costs. Climate change looms over all operations requiring significant energy spend, and that’s especially true of an area that requires long distance travel.

It all points to a shift in how the systems that bring goods to shelves are built.

“The ‘just-in-time’ supply chain worked perfectly and brought about unprecedented global prosperity in the late 20th and early 21st century,” Marne Martin, president of service management for EAM & Global Industries at enterprise software solution provider IFS, told The Current earlier this year. “But now these weak links are exposed and highlighted by geopolitical tensions, climate change, and lingering ripple effects from the pandemic, creating a domino effect that will wreak havoc to the stretched supply chain network.”

To be sure, making a change is a different prospect for small businesses than it is for global corporations. But Capterra’s research points to a number of reasons why nearshoring can be worth it. Proximity and time zone syncing make it easier to manage critical situations, while cultural disparities are likely to be fewer. At the same time, there are financial incentives and trade agreements in place to help businesses, both in bordering countries like Mexico and Canada and 11 other countries that are not as close, such as Australia.

“Macro factors, such as war and climate change, will continue to change the supply chain landscape,” Capterra writes in an anaylst’s note. “But as more and more manufacturing plants open in North and South America, it’s a safe bet to move your supply chain network closer to home sooner rather than later. Map out your current supply chain as far up the chain as possible and then research potential replacement suppliers that are closer to home.”

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