Finance:Near-sourcing

Near-sourcing also known as near-sourced or near-source, is a term used to describe a business strategically placing some or all of its operations close to where its products are sold. Typically, the term is contrasted with the trend to outsource low-wage manufacturing operations to developing nations (offshoring), and is used to highlight a reversal of that trend. Businesses can near-source everything from product production to customer and IT services. It is a form of outsourcing, in that the work is done by an outside contracted company rather than internally (insourcing), but unlike offshore outsourcing, the work is done in fairly close proximity to either the company headquarters or its target market.

Near-sourcing can save companies time and money, but it does not always mean bringing operations back to the home country where the firm is located. It could mean relocating or locating operations in a nearby country (nearshoring).

Overview

Outsourcing, insourcing, and near-sourcing are three ways businesses may deal with product manufacturing, customer and IT services. As consumers become more demanding, the importance of customer and IT services, as well as the ratings associated with customer and IT service performance becomes more relevant and plays a larger part in consumer choice. For many businesses the question is not so much whether to near-source, but how, to what extent, and which parts of the business might be suitable. Services that can be near-sourced are manufacturing and production, customer service representatives, and IT services.

Reasons to near-source

Cost

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 (of any kind) in developing nations. Near-sourcing services can reduce the overall cost of the employee to the company, by requiring payment only for work rendered and eliminating extra costs such as insurance and paid time off.

Companies may save millions of dollars on shipping costs by manufacturing products closer to their headquarters. For instance, importers have historically spent 15 percent of their shipping costs on fuel; therefore, the foreign imports of goods makes the end product more expensive for the company and their customer compared to domestically produced goods.

Culture

Cultural alignment with the business is often more readily achieved through near-sourcing due to there being similarities between the cultures in which the business is located and in which services are sub-contracted, including for example proficiency with the language used in that culture.

Communication

Communication on business projects between management and the project team is often of particular concern. Constraints imposed by time zones can make communication a labor intense process, so 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.