6 Reasons Why Near-Sourcing Is NOT a Sustainable Solution

Nearsourcing is a strategy. Like any strategy, it’s not a one-size-fits-all solution. It has its pros and its cons — and any manufacturer looking only at initial cost savings is setting itself up for pitfalls.

Even in lean operations, few manufacturers take a close enough look at the real cost. This paper walks through a real-world example that shows what the true cost of nearsourcing can be, based on the experience, observation, and analysis of MES’s global supply chain programs.

Six things you should know before choosing nearsourcing as your primary strategy:

• More (costly) production changeovers
• Expensive and time-consuming tooling development
• Bigger commodity costs
• Higher tool set-up expenses
• Increased trucking rates
• Inability to adequately handle high mix, low volume

The complexity explosion

Consider an automotive manufacturer. In 2015, its mid-size SUV had simple options: two engines, two transmissions — one chassis bracket tool covered everything. By 2021, the lineup included two engines, four transmissions, a hybrid, and an EV model. Total bracket volume stayed the same (~210,000 units), but it now takes four different tools to make six versions.

With nearsourcing, more tools means more changeovers that cost both time and money — and serious constraints in North American capacity for building quality tools make it worse.

The tooling math

A heat sink die casting tool (aluminum part, 8″ x 10″ x 4″ deep with moderate ribs) costs approximately $28,000 in China or India with a 7–8 week lead time. That same tool made in the United States costs about $105,000 with a 14+ week lead time — almost quadruple the cost and double the lead time.

For the four-tool program above: U.S. tooling totals $400,000 with 14–16 week lead times, versus $112,000 and 7–8 weeks in China or India. That is $288,000 in capital investment savings — almost 70% — on tooling development alone.

Commodities, labor, and hidden costs

Commodity costs are not stable across regions either. When 2018 tariffs forced the U.S. to shut down recyclable material exports to China, Chinese commodity prices rose significantly for nearly 18 months — and the rebound is now raising raw material prices for local die casters.

Labor tells the same story: U.S. labor is top-dollar, Mexico comes in 73% lower, and offshore suppliers run 82% below U.S. rates. Higher labor costs flow directly into higher costs for the deliverable.

Play the strategy out to the end game

To be clear: MES is all-in for domestic production close to customers, and for preserving domestic jobs and the industrial economy. But commercial challenges abound if your only strategy is nearsourcing.

The key to deciding if nearsourcing is viable is to use actual facts and figures to play the strategy clear out to the end game — comparing total landed costs, not initial quotes. Then, and only then, can you be sure you’ve made the right, cost-effective choice.