5 benefits of onshoring

The industrial space has often seen offshoring as the way to slash logistics costs and access skilled labor. As offshoring’s popularity wanes amid global supply chain disruption, here are five reasons why onshoring is increasingly looking like a better option.

The tide’s turning on offshoring. It used to be standard practice for companies to relocate the manufacturing and production process, or another business operation, to different countries. The appeal was typically cheaper labor rates, access to specialist skills, and occasional tax incentives.

But the shift away from offshoring has been a long time coming. In truth, it’s always been fraught with vulnerabilities, dependent on volatile factors including the availability of foreign workforces, international relations, and travel conditions. When these were laid bare by the COVID-19 pandemic and recent international conflict, companies reconsidered their approach. Their options?

1. Bring overseas operations back onshore (in other words, to the home country where they’re based) — otherwise known as reshoring.

2. Transfer overseas operations to a neighboring or nearby country (for US-based companies, that’s Mexico and Canada) — nearshoring.

3. Hire another organization to manage the operations on their behalf — outsourcing.

Onshoring is when a company chooses domestic production or manufacturing operations, but isn’t moving from an offshore setup. With companies increasingly deciding to keep things close to home — 94% are planning direct investment in onshoring or nearshoring, according to Accenture — here are onshoring’s five most compelling benefits.

1. Lower risk

Offshoring, and even nearshoring or outsourcing, increases the number of variables in your operations and therefore invites risk. Covering a greater distance makes order fulfillment take longer and risk delays, failures or shipment losses — ditto reverse logistics. Onshoring is not only more reliable in terms of inventory management and fulfillment, but it can also be quicker to trace anything that goes astray and send out a replacement.

And it’s not just goods that are being shuttled. Offshoring, nearshoring and outsourcing all involve the transfer of sensitive business and customer data, making companies reliant on the external site’s security. Onshoring negates the concern of sharing data or intellectual property with third parties.

There also isn’t a language barrier to worry about with onshoring, reducing miscommunication. Nor are there different time zones and national holidays that can disrupt business continuity and productivity.

2. Support sustainability

Offshoring has always been something of a thorn in the side for companies’ ESG performance. No matter how far they’re moving the sustainability dial by eliminating waste or sourcing eco-friendly materials and packaging, carbon footprints take a hit when goods have to be transported overseas.

Offshoring’s sustainability implications extend beyond generating emissions from bringing materials and assets onshore or shipping them to customers. Countries won’t necessarily operate under the same environmental regulations as the company, potentially dragging down the business’s overall ESG performance. Emissions reporting, including Scope 3 emissions, becomes more complicated by involving offshore operations in the value chain.

Onshoring removes potential friction, so there’s greater alignment across the supply chain and fulfillment toward the business’s sustainability goals.

3. Enforce compliance and quality control

It’s not just sustainability standards that are easier to monitor and maintain with onshoring. It also helps standardize business processes, instead of integrating different ways of working or organizational cultures that might be less compatible. Quality control is less likely to slip as a result.

And there can be more serious downsides to onshoring’s alternatives, such as third parties breaching compliance with company regulations around HR and national employment legislation. An overview of all business teams and conformance to policies or processes is more feasible with onshoring.

4. Cost management

Onshoring also offers greater control over costs. Although it can be tempting to see offshoring as the way to go for cheaper labor, there are customs fees and transport costs to factor in. These tariffs and duties can spiral out of control at any time, let alone when geopolitical tensions are making imports and exports more expensive. Onshoring costs can therefore prove more predictable, so forecasts are more robust and straightforward for finance teams.

As a bonus, onshoring supports local economies and industries in the home country, which also brings reputational benefits and can contribute to ESG scores.

5. Simplify the supply chain

Another benefit of keeping operations more contained through onshoring is on the supply chain. The more centralized it is, the simpler supply chain management and continuous improvement become. Bottlenecks and delays are less likely — or are at least easier to spot and act on — when the supply chain doesn’t sprawl over international production, manufacturing and fulfillment centers.

Since supply chains are so interconnected with the wider business process, from procurement to invoicing, streamlining here really means streamlining your entire operations.

How to improve an onshore operation

In any case, what the most seamless business operations come down to is holistic process visibility. It can be hard to know exactly what’s going on in the business, even when operations stay within the company’s national borders. But this insight helps to validate a decision to onshore, as you gain clearer data on the speed, reliability and consistency of processes.

Before a business decides where to base their operations, transparency over their processes is essential to evaluate where improvements are required and the impact of redistributing areas such as the supply chain.

All of which makes the Celonis platform invaluable. Process Intelligence gives businesses an accurate, real-time, end-to-end view of how their operations are running. This brings improvement opportunities to light, including underperforming suppliers or supply-chain bottlenecks. With this objective insight, businesses can make truly informed decisions about where an onshoring project could achieve the best results. Take a closer look at how Process Intelligence works.

Kelly Fritz

Senior Content Creator

Kelly Fritz is a Senior Content Creator at Celonis. When not writing, she spends way too much time searching for vintage dresses, underpriced houseplants on Facebook Marketplace, and ever-faster bike routes between Brooklyn and Manhattan.