Near-Sourcing: The Way Forward

In the immortal warning of the Jaws movie poster, ‘Just when you thought it was safe to go back into the water,’ so it is with near-sourcing.

“Last spring and summer,” recalls Charlie McGee, Vice President of International Development for Averitt, “near-sourcing was hot as firecrackers.” The competitive advantages that had been driving U.S. supply chains in a mad dash to China over the previous decade had seemingly all turned sour. Now, though, he’s seen that wave of enthusiasm begin to ebb.

The pressures to bring sourcing closer to home came to a focus when hefty ocean fuel surcharges (remember $150 a barrel oil?) were wiping out much of the savings from cheap labor. But compounding that difficulty was the rising levels of the ‘China price’ of goods themselves. With the economy flush, the government started eliminating the energy subsidies to domestic companies it had granted to spur production. There were other concessions to the pressures from global trading partners to level the playing field. Minimum wage laws were instituted (while demand pressures were putting workers in industrial regions in short supply, also pushing up pay). The melting of scrap into steel was subject to environmental oversight, adding costs. And hovering over the entire economy, like the perennial grey pollution, was inflation in basic commodities.

“Lots of people started to re-think their overall supply chains,” observed McGee. “Near-sourcing got pretty strong legs.” This was especially true with products which less labor intensive, like tooling and metals. The Americas started looking good again.

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