Reshoring II – Close-shoring

Close-shoring is the practice of demanding that a supplier is based close to the customer’s location to facilitate the sharing of best practices and innovation between the two. When done strategically it can significantly lower supply chain risks and overall costs.

What is Close-shoring?

Close-shoring is the extreme opposite of off shoring. Close-shoring is when you require your supplier who otherwise could be located far away from you to instead be located within a certain distance from your location. The usual definition is within one hour’s commute of the customer and can be far closer. In Alberta that would mean an Edmonton company would insist a potential supplier have a location in Edmonton or Nisku but Red Deer would not be suitable. Note – Close-shoring is different from having a supplier in house. When a supplier is in house that facility are typically dedicated to that one customer.

Why insist on Close-shoring

There are two main reasons that companies give for insisting on close-shoring. The first is specific risk mitigation and the second is they require specific local skill support. Risk mitigation occurs when the customer company knows there is supplier or project risks that they will need to closely manage through the production or project life cycle. Examples include when integrating a part into larger complex systems is problematic or alternatively that frequent customization is required and so greater support required.

Close-shoring also opens up additional opportunities for the client and supply companies to work together with regards to inventory management, logistics and true Just in Time production.

Innovation

Companies that engage in close-shoring find that being closer to each other more staff visit each other’s locations. This increased interaction exposes issues and opportunities that normally would not be discussed. This then results in the supplier now being involved in offering solutions or even new ideas on how product can be used or developed. These companies find their closest suppliers become some of the biggest contributors of innovation.

Example

Bombardier Trains (UK) had committed to delivery of a new train class to its customers in 18 months. This tight development and production program meant that if there were any programs delays they would miss delivery promise dates. Risk management was identified as being critical to project success. Evaluating previous projects a number of supply chain risks were identified, one of these being wiring harnesses. The risks identified were not just late delivery but difficulty in mounting harnesses and poor performance. Poor communication between Bombardier and previous harness suppliers had been identified as a major cause. The decision was taken that the wiring supplier had to be located 30 km’s away or less.

The result was that instead of the normal 5-8 harness revisions being issued per vehicle class, this time only 1 or 2 revisions were issued. The supplier knowing many of the issues that Bombardier would experience worked closely with them to avoid repetition and were present during 1st vehicle assembly collaborating on harness layout before committing to final assembly. The cost savings to Bombardier from the reduced number of harness versions and decreased vehicle assembly time was estimated at 20-25% of the harness contract price.