When distance is dangerous: 3 pitfalls of offshoring
Though many companies embraced the trend toward offshoring, the Covid-19 crisis has underscored its limits.
Supply lines have suffered, the pace of global transport has slowed, and some suppliers are struggling to survive, creating challenges for business models that rely on far-flung resources.
In this article, we examine the real-world consequences of offshoring and the benefits of staying closer to home.
When disaster strikes, the first consequence of distance is the potential for logistics problems.
With delays now affecting transport infrastructures around the globe, for example, it can be hard to ship goods and raw materials efficiently from one region to another.
Absorbing higher transport costs
Many countries have responded to the pandemic by imposing transport restrictions. Result: import prices have shot up in some product categories, and finding new sources and procurement methods in a hurry has often meant higher transport costs for businesses.
Meanwhile, long distances between suppliers and production sites have created major supply problems, particularly for sourcing raw materials.
Case study: Biosynex
Biosynex—a medical device specialist based in Alsace—has solved the distance problem by bringing a portion of its production back to France. In 2019 the company relied heavily on imports: local sites accounted for only 13% of production, primarily final packaging of products manufactured in Asia.
But when the pandemic hit, Biosynex was unable to get certain components from its Chinese supplier. In response, management has doubled production in France, particularly for the company’s most strategic products.
Customers out of reach
It can also be tough to keep products flowing to your consumer markets if manufacturing and distribution sites are too far away.
The Covid-19 crisis has highlighted the need for suppliers that are closer to customers and/or more diversified supplier pools.
It also underscores the benefits of locating in a region with a rich ecosystem and a tightly-woven network of infrastructure options, including a choice of both inbound and outbound logistics solutions.
IMPACTS ALONG THE ENTIRE LOGISTICS CHAIN
When suppliers, production sites, distribution centers and consumer markets are too far apart, logistics inevitably suffer.
And while you may not feel it in normal times, a crisis can shine a spotlight on the weak links in your supply chain.
Since the Covid-19 crisis began, companies have become more focused on optimizing their logistics chains and securing their supply lines. New awareness of these issues is central to an emerging trend towards moving closer to home or even reshoring.
Problems with transport and supply have left businesses unable to secure critical components and raw materials, forcing them to slow or even suspend production, with catastrophic financial consequences for them and their employees.
And even where production lines are running, companies still need to get their own products out to markets. Since the pandemic began, for example, it’s been hard for many retailers to keep their stores stocked with inventory. Amid the disruption in transport infrastructures, being close to distribution centers and customers has been a powerful asset.
GAPS IN COVERAGE
If there’s too much distance separating the sites in your network, it can be difficult to cover your territory effectively. And that holds true for services as well as industry and logistics.
Since the Covid-19 pandemic began, long distances between customers and after-sales service centers have made it more difficult to make house calls for repairs and fine-tuning. Here again, a tightly-woven regional network is essential for optimum service.
The crisis has naturally had less impact on remote customer service that doesn’t require in-person contact. So smart customer relations players have weathered the storm successfully by combining onshore, nearshore and offshore resources, creating a relay effect that expands their hours of availability.
Why your local environment matters
The Covid-19 pandemic and its consequences have shown the importance of finding a location with the right global infrastructure for your business. When you scout a new location, don’t limit your search criteria to production cost factors—be sure to consider the quality of the business ecosystem, transport infrastructure and the rest of the local environment.
Looking for a dynamic ecosystem? Want to locate your business in the heart of Europe, in a region with outstanding road, rail and air transport infrastructure? The team at Nord France Invest can help you set up your new venture in Hauts-de-France.