Guide
How to model a nearshoring decision honestly
Updated
Most nearshoring analyses compare one unit price with another, then argue about the rest. The argument is the analysis; here is how to put it in the spreadsheet.
Start with landed cost, not price
Take the quoted part price, add freight, packaging, duty and any handling, and divide by the units. That is the only unit number worth comparing, and it frequently narrows a gap that looked decisive.
Quote at your real annual volume, ex works, with tooling separated, or you are comparing different things.
Then price the inventory
A long lead time forces safety stock and puts goods in transit for weeks. Multiply your weeks of cover by cost of goods by your cost of capital, and compare that at each origin.
This is the line that most often reverses the decision, and it is usually absent because it belongs to finance while the sourcing decision belongs to procurement.
Then price iteration
Count the engineering changes you made in the last year. For each, ask how much sooner the revised part would have been in production at a nearer origin, and what that delay cost.
For a settled product this is close to zero. For a product still finding its shape it can be the whole case.
Then price the bad batch
Take the worst quality escape you have had in three years and ask what the same event would cost at each origin, including containment, sorting, rework and lost sales.
Averaging this to a small percentage is how it disappears. The point of the exercise is that it is rare and large, which is exactly the shape a model rounds away.