Near-Shoring Private Labels

I am on the road almost non-stop this month talking with distributors and manufacturers about the new Facing the Forces of Change®: Lead the Way in the Supply Chain report, giving me real-time insight into how executives are responding and interpreting the results.

Discordant Trends?

Here’s a really thoughtful question that I got recently: “Doesn’t the Private Label trend counteract the Demand-Driven Channels trend?”

The short answer: Maybe. (I said it was a thoughtful question, not an easy one!)

The Demand-Driven Channels trend describes how to build a lean supply chain and reduce inventories through closer relationships with suppliers. In contrast, the Private Label trend describes how wholesaler-distributors are taking over more functions and risks from suppliers.

I mention this trade-off very briefly on page 29 of Lead the Way in the Supply Chain when I write: “Geographic distance makes planning more difficult because lead times are much longer and more uncertain, thereby inflating inventories in the supply chain. Ironically, global sourcing strategies by wholesaler-distributors represent a trend opposed to the demand-driven channel trend.”

Demand-Driven Private Labels

To better understand this trade-off, I suggest that you check out a very useful article called Revisiting LCCS in a Demand-Driven World from the new Supply Chain Management Review.

(In case you are wondering, LCCS stands for “low-cost country sourcing.” Hey, it wouldn’t be a real supply chain article without some MUFLAs -- Made-Up Four Letter Acronyms!)

As I note in Chapter One of Lead the Way, the lower costs and ready availability of overseas sourcing opportunities makes it easier for wholesaler-distributors to get their own private label products manufactured. Nearly 2/3 of distributors with private labels are using LCCS from an overseas plant.

However, the article advocates a reevaluation of “near-shoring,” such as sourcing in Mexico for goods destined for the U.S. and Canadian markets. Key points:

• “While offshoring provides clear reductions in the product cost, the associated overhead and processes required don’t always sustain the value.”
• “Near shoring may not yield production costs as low as the offshoring sites, but it can provide less cost and process fluctuation in the value chain.”
• “Companies that have products with variable demand, require low inventory, have bulky but labor-intensive products, and require significant buyer-led supplier development or engineering support are good candidates for the near-shoring option.”

Read this article to better understand the supply chain burdens of a longer inbound supply chain.