Near‑Sourcing Explained: How Proximity Boosts Efficiency and Cuts Costs

Near-sourcing is a term used to describe a business strategically placing some of all of its operations close to where its end-products are sold. Typically, the term is contrasted with and used to highlight the reversal of the trend to outsource low-wage manufacturing operations to developing nations. In cases of near-sourcing, the business firm is often responding to rising costs in supply chains as well as rising costs associated with sourcing labor in developing nations. Aside from mitigating the uncertainty of rising costs associated with outsourcing to offshore locations, there are some other advantages associated with the economic trend. Those include cultural barriers, proximity, time-zone constraints and skill surplus where available.

Covering the full scope of near-sourcing, however, does not always mean bringing operations back to the headquarters of where the firm is located. Instead, it could mean relocating or locating operations in a neighboring nation that offers some sought-after advantages. For example, a car manufacturer in the United States might decide to near-source operations to Mexico, rather than outsource offshore to China. What is inherent to the decision is finding the closest location possible to the product market that offers some or all of the aforementioned advantages, while avoiding some of the rising costs in the supply chain.

Advantages often sought after and found in the process also help to reduce expenditures and costs, while tapping into required resources that contribute to the organizations overall mission. Cultural alignment with the business firm is often more readily achieved through near-sourcing due to human capital resources having a familiarity of the culture in which the business firm is located, including proficiency with the language used in that culture. Communication on many business projects between management and the project team is an ever-growing concern. Constraints imposed by time zones makes communication a laborious process, but near-sourcing provides a solution for facilitating the communication process through eliminating or reducing time zone constraints.

Proximity also facilitates communication by allowing various actors within the business to meet on a regular basis when required. Traveling from the United States to Canada only takes a few hours depending on the location, but traveling to China or Europe often entails a much longer flight time. Coupled with access to human capital exhibiting the acquired skills needed to perform the organization’s core operations, near-sourcing effectively avoids rising costs in the supply chain and mitigates of the risks associated with offshore outsourcing.

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Link to Sources

• https://archive.nytimes.com/boss.blogs.nytimes.com/2010/06/23/is-manufacturing-coming-back-to-the-u-s/
• https://www.scmr.com/article/near-sourcing_gains_traction_in_supply_chain/