By Kenneth Surbrugg, Director of the Center for Entrepreneurship at Missouri Southern State University
An article published by the Coleman Report recently caught my eye. This article contained information from the research firm Capterra. According to research by Capterra, “88% of small businesses plan on or are currently switching some of their suppliers closer to the United States in 2023.” This trend is the result of many small businesses being concerned with procurement challenges. It is hard to produce or sell something if you cannot obtain the inventory.
This trend of utilizing suppliers closer to your business is called nearshoring. Instead of looking for suppliers from all over the world, you look for suppliers closer to your business for inventory needs.
This report only surveyed small businesses — those businesses that have 500 or fewer employees. The report did not shed any light on what mid-size or larger businesses intend to do for supplier needs.
But closer to the United States does not necessarily mean within the United States. For example, a small business that utilizes a Chinese supplier may now consider investigating a similar supplier located in Mexico. And this brings up some interesting questions for small businesses to consider:
- Closer suppliers would indicate quicker delivery times. Will this translate to a reduction in shortages and stockouts?
- What will be the impact on final product quality?
- What will be the impact on the price of final goods?
- Are there enough suppliers to meet this growing demand?
Small businesses will still have quality controls in place and laws and regulations to follow. And they must still be competitive in the marketplace. But if this trend does indeed play out this year, then it will be interesting to see how small businesses compete in the local and regional markets as compared to larger businesses.
The research from Capterra also pointed out that more small businesses have joined or plan to join a group purchasing organization to manage procurement costs and challenges. Purchasing groups can also spread the cost of shipping to more businesses, thereby lowering transportation costs.
Business owners still need to consider their target customers as well as what they are looking for in the products and services that their business offers when deciding to nearshore a supplier. Your customers have jobs to fulfill and are either looking to avoid pains or achieve gains. How will this decision to nearshore inventory impact your customers’ decisions about your business? How will this impact your customers’ perception on quality, price, and value?
One step to consider before making this decision for a new supplier is to test the market with your new inventory. Ask customers for a trial that utilizes this new supplier and then request feedback to see how these new products impact customer perception. How is your new supplier perceived with your customers? If positive, and it makes sense to you to switch, then consider a switch. However, if customers do not have a favorable view of your new inventory, then think about researching another vendor.
Businesses that explore and implement nearshoring will have an impact on the U.S. economy. With the promise of inventory fulfillment, fewer logistic delays, and greater inventory control, small businesses have many reasons to consider this as a positive trend in 2023.