1. Supply Chain Insights
Grant Thornton Consumer and Industrial Products practice Part 1 of 3 — August 2012
Nearshoring: Then and now
Over the past decade, international High fuel prices, rising transportation
Each year, Grant Thornton LLP collaborates with
World Trade 100 magazine on a series of three sourcing has come to take up an extremely costs and longer transit times initially
surveys concerning the supply chain. These surveys large portion of the supply chain for drove this surge in nearshoring, which
are intended to provide a snapshot of issues and U.S. companies. The ubiquity of “made began in 2008 and has continued
opportunities in the supply chain industry. We hope
that this 2012 survey (part 1 of 3), along with insights
in China” products and call centers in unabated. While nearshoring doesn’t
from Grant Thornton’s supply chain professionals, helps Bangalore speaks for itself. But it doesn’t necessarily overcome all the challenges
inform your sourcing and supply chain decision-making. tell the whole story. In fact, there is a rising of dealing with international suppliers
tide of manufacturers and distributors — since distance, language, culture and
moving sourcing closer to home. Consider time zones may still be problematic —
the outrage over U.S. Olympic athletes the greater proximity allows for more
wearing uniforms made in China. This is flexibility to align with suppliers.
emblematic of a growing pressure to bring Grant Thornton LLP’s 2012 Supply
sourcing back to the United States or, at Chain Insights survey, conducted in
the very least, to more proximate locations partnership with World Trade 100
such as Canada and Central America. magazine, highlights the expectations
of manufacturers and supply chain
professionals for the coming year, and the
issues that are most on their minds.
continued>
Over the past decade, international sourcing
has come to take up an extremely large portion
of the supply chain for U.S. companies.

2. Nearshoring: Then and now (continued)
What percentage of your supply chain Did you bring international sourcing closer to the United States (e.g., Mexico, Canada)
purchases are sourced internationally over the past 12 months?
(from outside the United States)?
2009 2012
2010 30% Yes 19% Yes 25%
2011 32% No 81% No 75%
2012 (proj.) 34%
Number of respondents: 313 Number of respondents: 357
A shifting landscape International sourcing, but closer “One trend we are seeing is an uptick
A growing percentage of goods are to home in nearshoring IT and shared services.
sourced outside the United States, with Eighty-one percent of manufacturers For instance, companies might locate
34% of goods expected to be sourced report that they are increasing their their IT call centers in small towns in the
from outside the United States in 2012, up sourcing from the United States, up from States rather than large cities in India. The
from 30% in 2010. But where these goods 59% in 2009 — a 22% rise (see chart clear advantage is that U.S. locations are
are sourced is somewhat of a shifting on next page). This is undeniably good culturally a known quantity. There will be
landscape. While China remains a major news for the U.S. economy. It’s worth some cost savings, although not nearly to
* Responses may not total 100% due to rounding.
offshore supply source, an increasing noting that some of this U.S. nearshoring the order of magnitude of India. But you
number of manufacturers are bringing represents the relocation of certain back- pay more to get more,” explains Graham
their sourcing closer to home, to locations office functions and call centers as a Tasman, principal, Finance Operations
such as Canada or South America, or truly means of improving responsiveness and Solutions Group. “There are some
back home — to the United States. customer service. locations in the United States that are
favorable for hosting business operations
such as shared services,” notes Tasman.
“Factors that we look at include labor
pool availability and language and time
zone considerations, along with proximity
to higher education institutions.”
continued>
2 Supply Chain Insights — Part 1 of 3 — August 2012

3. Nearshoring: Then and now (continued)
Three in 10 manufacturers — up
In which countries are you increasing your material and service purchases?*
from 18% in 2009 — have increased
2009 2012
their sourcing in Canada. But sourcing in
United States 59%
Mexico has actually declined, falling to 81%
20%, from 49% in 2009. Canada 18%
30%
Mexico 49%
Offshoring versus nearshoring: 20%
What’s at stake?
*Respondents were able to select more than one answer.
The issues that are driving companies
to consider nearshoring vary. Frequent
complaints about international sourcing What does your company stand to gain by nearshoring?*
include late deliveries (23%, the same
Shorter lead time 39%
percentage as in 2009) and poor quality
Lower costs 30%
(21%, down from 25% in 2009). Higher Better-quality products 19%
total costs are also a problem cited by Better supply chain control 9%
More reliable 2%
12%, compared with 7% three years ago.
Better communication 1%
But it’s worth noting that 17% have no Less inventory 1%
difficulties with international sourcing, an Other 14%
increase from 14% in 2009. N/A 7%
“You want a supplier that can provide *Respondents were able to select more than one answer.
what you need at a high quality — when
you need it. When considering sourcing
origins, companies must factor in not only Understanding conflict minerals disclosures
the cost of goods, but also the cost of late
deliveries, the cost of getting the product to Conflict minerals are essential in the manufacturing processes of a variety of devices such as mobile phones,
laptops and MP3 players. Conflict minerals are so named because they are sometimes used to finance
distributors and customers, and intellectual conflicts in the Democratic Republic of the Congo and its adjoining countries (DRC countries). In December
property issues, as well as warranty and 2010, the SEC issued a proposed rule on conflict minerals to help implement Section 1502 of the Dodd-Frank
service costs,” says Steve Lyman, Advisory Wall Street Reform and Consumer Protection Act. Section 1502, also known as the conflict minerals provision,
is intended to highlight, via public disclosure, the exploitation and trade of minerals originating in the DRC
Services managing director.
countries. The SEC expects to issue the final rule in 2012, and compliance will be required one year after that.
continued>
The rule will require domestic and foreign issuers to disclose their use of certain minerals such as:
• Cassiterite — Tin, tin alloys, tin plating and solders for joining pipes and electronic circuits.
• Columbite-tantalite (coltan) — Tantalum, which is used in electronic components such as mobile
telephones, computers, video game consoles and digital cameras. Tantalum is also used as an alloy for
carbide tools and jet engine components.
• Gold — Jewelry. Gold is also used in electronic, communications and aerospace equipment.
• Wolframite — Tungsten, which is used in metal wires, electrodes and contacts in lighting, electronic,
electrical, heating and welding applications.
Domestic and foreign issuers that make use of conflict minerals will be required to implement new procedures
and disclose in their annual reports whether the conflict minerals that are necessary to either the functionality
or the manufacturing of the company’s products originated in DRC countries. Issuers will need to provide a
separate conflict minerals report when they either (1) use conflict minerals that are known to have originated
in the DRC countries or (2) use conflict minerals but cannot determine their country of origin.
3 Supply Chain Insights — Part 1 of 3 — August 2012

4. Nearshoring: Then and now (continued)
International sourcing: 2009 Percentage of international sourcing (dollar volume) by origination of goods/services
versus 2012
2009 2012
In 20091, the largest percentage of survey
China 28%
respondents that sourced internationally 25%
relied on China (28%), but we believe that Asia (excluding China) 15%
15%
this trend may be changing based on our
Western Europe 13%
most recent data. 14%
Today, many respondents are reducing Canada 9%
11%
their international sourcing, with China 8%
Mexico
seeing sourcing reductions from 57% 8%
2%
of manufacturers surveyed. But that South America
5%
percentage has shrunk slightly since 2009, 4%
Eastern Europe
when more than six in 10 respondents 3%
21%
(61%) cut back on sourcing from China. Other
19%
India and Pakistan have also
*Respondents were able to select more than one answer.
experienced sourcing reductions (17%,
down from 20% in 2009). And a growing From what countries are you reducing your sourcing?*
number of U.S. manufacturers have 2009 2012
slashed sourcing from other Asian China 61%
countries such as Japan (19% in 2012 57%
Japan 5%
versus only 5% in 2009), Korea (14%,
19%
compared with 3% three years ago), India/Pakistan 20%
and the Philippines (13% as opposed to 17%
Korea 3%
5% earlier). These findings represent a 14%
substantial rise in sourcing reductions Philippines 5%
13%
from several major Asian countries
Other (specify) 21%
besides China. 20%
continued> *Respondents were able to select more than one answer.
Are you in compliance with the California Transparency in Supply Chains Act?
California’s Transparency in Supply Chains Act (SB 657) became effective Jan. 1, 2012. Retail sellers and manufacturers that do business in California and have annual global
gross receipts in excess of $100 million are required to make disclosures on their websites about their efforts to eradicate slavery and human trafficking from their direct
supply chains for goods offered for sale.
Specifically, each company is required to disclose:
• to what extent, if any, it evaluates and addresses the risk of slavery and human trafficking in its products’ supply chain and whether a third party conducts the evaluation;
• whether it audits its suppliers and whether the audits are independent and unannounced;
• whether it requires its direct suppliers to certify that materials within their products comply with applicable laws on slavery and human trafficking;
• whether it holds employees and suppliers accountable and, if so, what the consequences are for employees or suppliers that fail to meet the accountability standards; and
• whether it trains employees on mitigating the risk of slavery and human trafficking in the product supply chain.
Are you in compliance? Our team can help you perform a risk assessment of the supply chain in order to identify the risks of slavery and human trafficking and develop
corrective action plans to address those risks; assist you as you evaluate specific suppliers and establish a supply chain due diligence program; and help you conduct audits
of domestic and international suppliers and vendors in order to verify their compliance with applicable requirements. We can also help you establish policies and procedures
to confirm that employees and contractors are following company standards regarding slavery and human trafficking, formulate internal control procedures for verifying
compliance, and develop and implement training for employees who have direct responsibility for supply chain management.
1
Our Supply Chain Solutions 2009 survey was based on data gathered in 2008.
4 Supply Chain Insights — Part 1 of 3 — August 2012

5. Nearshoring: Then and now (continued)
Managing supplier risk It’s important to look at the financial Industrial Products asserts: “The best way
“A best-in-class sourcing strategy health of suppliers because they can pose to monitor the financial health of your key
involves a risk-based approach to risks to both a manufacturer’s production suppliers is to form strategic relationships
managing the supply chain,” explains schedule and its strategic objectives. with them. In addition to sharing current
Tasman. “Companies need to be looking But 31% do nothing to monitor their financial information, your key suppliers
at reliability and performing due diligence suppliers’ financial condition. can participate fully in strategic planning,
on vendors’ ability to deliver. They need If a supplier is not a public company, continuous improvement and product
to ask — and be able to answer — a how can a manufacturer confirm its development efforts. When you are
crucial question: ‘What if there’s a break financial stability? Wally Gruenes, national engaged in that sort of relationship with
in the supply chain?’” managing partner of Consumer and your key suppliers, you will be keenly
aware of their financial health.”
continued>
What process did you go through to select a supplier?*
2009 2012
Used an existing supplier, so no process 28%
was used 36%
Used a supplier that was previously in our 20%
supply chain, so no process was required 23%
Conducted remote assessment based on 20%
supplier submission of data and/or 14%
response to questionnaire or assessment
Conducted on-site assessment at 28%
supplier location 21%
2%
Conducted no assessment
3%
3%
Other (specify)
3%
*Respondents were able to select more than one answer.
What are you doing to monitor the financial health of your suppliers?*
Only review financial health during 23%
negotiation of new contracts
Use data from third-party source 28%
Regularly request and review financial data 27%
directly submitted from supplier
Other (specify) 7%
Nothing 31%
*Respondents were able to select more than one answer.
5 Supply Chain Insights — Part 1 of 3 — August 2012

6. Nearshoring: Then and now (continued) Contact information
For more information about how Grant Thornton can help your
organization or to offer comments about this survey, please
contact:
Wally Gruenes
Looking ahead A nimble and cost-effective supply National Managing Partner
Consumer and Industrial Products
As the global supply chain grows more chain, one that can react promptly to T 214.561.2640
complex, staying on top of critical changes in customer demand or supply E wally.gruenes@us.gt.com
sourcing issues — such as nearshoring while keeping costs in check, offers Steve Lyman
(versus offshoring), cost cutting, transfer companies a lasting strategic advantage. It is Managing Director
Advisory Services
pricing and supplier reliability — is more our view that — at least for the time being T 404.475.0070
important than ever. Decision-makers — more U.S. companies that serve U.S.- E steve.lyman@us.gt.com
must consider all of these factors and more based customers will bring certain aspects Graham Tasman
Principal
as they strive to create a flexible, adaptable of their operations closer to home. •
Finance Operations Solutions Group
supply chain. A growing number of T 215.376.6080
E graham.tasman@us.gt.com
manufacturers are realizing that in addition
to hard costs, there are many other risks
and uncertainties that need to be factored
into a robust and informed approach to
global sourcing. In deciding whether to
move offshore, bring operations home
or maintain the status quo, supply chain
executives need to consider a multitude of
factors — factors that can and do change at
any given time.
About the survey
Grant Thornton partnered with Clear Seas Research, a
subsidiary of BNP Media, to produce this original research on
supply chain strategies. A total of 357 responses by readers of
World Trade 100 magazine were gathered from May 22, 2012,
to June 6, 2012.
About Grant Thornton’s supply chain advisory services
Grant Thornton provides a broad spectrum of supply chain
insights related to commodity planning, sourcing process
evaluations, pricing reviews, IT solutions, supplier assessments
and action planning, risk response protocol analysis, inventory
and asset management solutions, and consolidation and
resource management.
About Grant Thornton LLP
Grant Thornton LLP is the U.S. member firm of Grant Thornton
International Ltd, one of the six global audit, tax and advisory
organizations. Grant Thornton International Ltd and its
member firms are not a worldwide partnership, as each
member firm is a separate and distinct legal entity.
In the U.S., visit Grant Thornton LLP at www.GrantThornton.com.
About World Trade magazine
World Trade 100 magazine is a business-to-business logistics
journal delivering news and information to U.S. subscribers
active in domestic and international trade. World Trade 100
magazine covers every aspect of the global supply chain,
from the movement of products across the United States to
the procurement from and delivery to international markets.
Content in this publication is not intended to answer specific
questions or suggest suitability of action in a particular case.
For additional information on the issues discussed, consult
a Grant Thornton client service partner.
© Grant Thornton LLP
All rights reserved
U.S. member firm of Grant Thornton International Ltd
6 Supply Chain Insights — Part 1 of 3 — August 2012