Sector trends

Manufacturing insights: the pros and cons of reshoring

The Covid-19 pandemic has decimated global supply chains. Will it lead to more UK manufacturers reshoring in the future or are there other ways to make the flow of goods and services more resilient? 

Five experts share their insights.

According to the 2017 report ‘Realities of Reshoring: A UK perspective’ from the University of Warwick, 70% of companies had undertaken some form of shoring activity since 2008. Of those, 40% offshored, 13% directly reshored (relocated offshore capacity back in the UK) and 52% indirectly reshored, meaning they took a strategic decision to increase capacity at home instead of abroad.

Key drivers behind reshoring included rising labour and transport costs in offshore locations, shorter lead times expected by customers, more automation and a wish to reduce supply chain risks.

Will the huge disruption caused by the coronavirus pandemic, not to mention Brexit and the US-China trade war, lead to more manufacturers making this move homewards? We asked five industry experts how they think the current crisis will shape the future of supply chains.

Covid will change people’s attitudes to supply chain risk

Tony Hague
Chief executive of contract manufacturers PP Control & Automation:

“I hope we’ll see an increase in reshoring following the pandemic by manufacturers and their customers. It will be building on concerns we’ve already seen following Brexit. We picked up work at the end of last year from UK customers who have historically had a supply chain using manufacturers in Estonia or Slovenia as they chased the lowest price. They have now looked at their total cost of acquisition, risk and delivery time frames and reshored that activity.

“Covid will change people’s attitudes to supply chain risk and that will be brilliant for the UK economy. It’s already happening. We know manufacturers who picked up work after Chinese production stopped in January and February.

“With China coming back on stream, UK customers and manufacturers will probably not completely abandon their activities there, but there will be more consideration given to risk management. There will be dual supply strategies, so instead of having 100% volume with a couple of suppliers in China and India, they will increase UK manufacturing activity by, say, 25%.

“There are reshoring challenges, such as do the competencies exist in the UK for the products you are making or are they only available overseas?

“There are also cost factors, but if it’s just about price differential between the UK and overseas then hopefully there will be more engagement between larger companies and manufacturers and SMEs, leading to more investment in UK automation and skills to boost efficiencies.

“It’s long-term thinking that is needed rather than looking at where labour cost is cheaper. Manufacturers keep moving locations from China to Vietnam and to Africa chasing cost savings, but they don’t stay low for ever, as wages rise. It’s a risky strategy.”

It’s more about right-shoring than reshoring

Janet Godsell
Professor of operations and supply chain strategy, at WMG, University of Warwick:

“Over the last 30 years we’ve offshored such a large degree of our manufacturing that we don’t have many sites left. But we’re going to see a change because Covid-19 has shown the need for supply chains to be flexible and more local. We really don’t know what could happen next in the world.

“We’ve certainly seen this flexibility during the crisis, with UK manufacturers being challenged to produce ventilators and PPE [personal protective equipment] quickly for the NHS. Manufacturers like INEOS have stepped up, repurposing an old chemicals plant into a hand-sanitiser operation in the North East in just 10 days. The main raw material came from Scotland.

“Moving forward, we need to look at a rebalancing of manufacturing assets globally, regionally and locally. Just having big plants in one offshore location isn’t good.

“We’ll see more investment in economies of scope rather than scale, namely smaller factories in the UK with the flexibility to produce multiple products and provide more supply chain resilience.

“Also, as we move to a circular economy, we will need to have assets in the UK to support refurbishment and remanufacturing.

“But there’s no point having a UK factory if there is no demand for the product here or it isn’t competitive on transport or labour.

“It is more about right-shoring than reshoring. It is ensuring, through cost analysis, that manufacturing assets are in exactly the right place, so maybe that’s one plant in the UK and one in Asia. Or nearshoring – moving plants from, say, Asia to closer to home in Europe.”

Reshoring is not the only answer – it is part of it

Simon Knowles
Chief marketing officer, EVP Europe, at consulting firm Maine Pointe:

Covid-19 is just the latest global risk event, alongside trade tariffs and Brexit, which has exposed supply chain vulnerabilities. There needs to be more visibility in the supply chain, from your supplier’s supplier to your customer’s customer. It’s looking at modes of transportation and perhaps new sources of supply to rebalance and de-risk your supply chain rather than just focusing on cost.

“It will lead to more regionalisation and localisation such as reshoring. You have emerging digital technologies, with 3D printing coming of age, which means you can manufacture near to local customer demand. Reshoring is also driven by quality, certainty and speed of delivery.

“However, high energy costs, availability of raw materials and a shortage of skilled labour present significant barriers.

“Reshoring is not the only answer – it is part of it.

“An alternative for manufacturers to improve resilience could be moving your overseas sources of supply from one country to another, for example from China to Malaysia. Manufacturers need to use supplier forums when they do this to find the right partners. You don’t want to find any old Tom, Dick or Harry; they need to be competent. That search could be complicated by suppliers going out of business in the economic downturn ahead.”

Diversity of supply is key

Seamus Nevin
Chief economist at Make UK, the manufacturers’ organisation:

“The pandemic could lead to more near- or reshoring as manufacturers look to reduce exposure to global vulnerabilities, but equally there will be an awareness of not putting all your eggs in one basket, even in the UK. There could be a disruptive event unique to the UK in the future, so diversity of supply is key. We’ve already seen, due to Brexit, a significant drop-off in demand for British-made goods from foreign customers because of the uncertainty around tariffs.

“In the UK, we mainly manufacture intermediate components. We take an input from somewhere else and repurpose and refabricate it and we export it to be a component in a finished good elsewhere. Our value-add comes in our high-skilled and high-precision manufacturing. It’s unusual in modern manufacturing to make a product from start to finish in one place.

“The challenge for reshoring, therefore, is the availability of raw materials and the skilled workers needed to do the jobs required. The sector pays wages well above the national average. You also must build factories so it will all take time.

“My advice to manufacturers is to have a root-and-branch review of your supply chain. Where the goods come from, where they go to, and what the capacities of your suppliers are. You need to have multiple sources of suppliers providing inputs and a diverse customer base.”

Invest in facilities, skills and processes

Roger Vance
Managing director of precision engineers Ad-Vance Engineering:

“As shown by the pandemic, we have a good nucleus of UK manufacturers who can react quickly to deal with problems. We’ve been busy making face masks and will look to continue.

“We manufacture here but buy a lot of materials from Spain and Austria. We’ve encouraged the Spanish supplier to open a local presence in the UK to help us meet the need for quicker deliveries.

“It’s important for UK manufacturers to invest in their facilities and skills and processes. You need to focus on quality and customer service and be proactive when it comes to technology and innovation.”

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