Right Shoring: Definition and Benefits

In recent years we are seeing more and more businesses relocating parts of their operations back home from overseas. This is part of the move to “right-shore” – selecting the best home or offshore locations for different parts of operations. Rising prices and past experience in offshoring are leading many companies to change.

Right-shoring has been a trend for some time. In 2012, over a third of large US manufacturing companies were looking at moving production away from overseas.¹ A Gartner survey in 2020 backs this up. It shows around a third of large companies moving operations out of China (a main outsourcing location) by 2023.²

What does right-shoring mean?

Put simply, right-shoring is the process of moving parts of business operations to the best location. The focus is on maximizing profits and lowering costs.

This is a broader concept than offshoring. This focuses on the idea of locating operations in an overseas (typically lower cost) country.

Right-shoring can involve splitting operations between home and overseas locations. It recognizes the overall business efficiency and profit impact. In doing so, it looks much wider than just the lower costs of overseas operations.

What are the benefits of right-shoring?

Splitting business operations sensibly between home and overseas brings many benefits. These include:

• Reduced freight costs. Even before recent increases, this formed a large part of offshoring costs. Moving manufacturing closer to selling markets can significantly reduce costs.

• Increase operating efficiency. Distributing operations brings increased cost and complexity. This needs to be factored into any potential cost saving. Right-shoring will focus on this.

• Simplified inventory handling and reduced cost. Overseas manufacturing often requires high levels of inventory in different locations. This has become even more complicated and expensive with recent supply chain disruption.

• Reduced security risk. The more locations a business operates, the more exposed it is to global security risks. This includes political risk, military risk, and terrorism.

Right-shoring vs offshoring

Offshoring has been popular over the past decades. Many companies have followed the trend to move manufacturing or other operations overseas. Low labor and overhead costs were primary drivers for this. China joining the World Trade Organization was another boost. This made it simpler to move manufacturing operations there at a time when costs were much lower.

Over time though, offshoring has not necessarily offered as much as hoped. Costs have risen in many countries. Fuel prices have increased. And services and prices in many areas have become increasingly volatile. As a result, many companies have changed their off-shoring strategy.

Right-shoring is the evolution of offshoring. It explores operations more thoroughly, both at home and overseas. The best solution for many businesses is to move some areas closer to home. But cost-effective overseas locations still play a part.

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Sources:

1. Right Shoring - FreightWaves
2. Rightshoring enables the right decisions

Sources checked December 14, 2022.