Steven Barr, Head of the Manufacturing Advisory Service (MAS), explains why reshoring is an opportunity manufacturers – both large and small – should seize with both hands.
When the results of our November Barometer on manufacturing SME confidence were released, little did we know we would be playing a small, but important part in creating one of the business trends of 2014.
Figures from this survey, which covered just over 530 firms from across England, gave the first clear indication that reshoring is actually taking place in our industrial base.
Our advisors working on the ground had certainly seen evidence of it, but what we didn’t expect to witness was such a paradigm shift from sending work overseas to actually bringing it back home.
11% of manufacturing SMEs we questioned said they had or were planning to reshore parts of their production. Not a huge number by any means. However, when you compare this with just 4% planning on ‘offshoring’ it was enough to suggest the tide was well and truly turning.
The trend is not typical to SMEs only: according to EEF’s recent report, which looks at businesses both large and small, one in six UK-based manufacturers has brought production back in house in the past three years.
What made for even more interesting reading from our Barometer was the drivers behind this trend. For so long, manufacturers felt that it was cheaper to produce certain products and components in low-cost countries and this saw a strong migration of activity towards Eastern Europe and the Far East.
The supply chain wasn’t perfect, but a lot of management teams were prepared to take the pain for the financial impact it made on the bottom line.
This no longer appears to be the case. More than a quarter of respondents said that concern over cost was the principal reason for reshoring, followed by improving quality (20%) and reducing lead times (18%).
Should we be surprised by this? Not really in my opinion. Wages are rising dramatically in low-cost manufacturing bases and the price of logistics continues to escalate.
However, this perhaps misses the biggest factor of all; the price of the landed part is considerably more than the one you receive on your quotation.
What this means in layman’s terms is that time delays in transport, issues with having to send components back and possible breakdowns in customer relationships all add up to a potentially expensive option.
I think we also have to praise our own manufacturers for the way they have bounced back from the global economic downturn by becoming smarter, leaner and faster. It hasn’t been easy and there have been casualties along the way.
The reality is that our manufacturing base is now more globally competitive and eager to explore new international markets than it was pre-recession.
A lot has happened since the MAS Barometer was made public. Millions of pounds of national press, trade coverage and TV appearances hurtled the topic of reshoring into the public eye and this was soon to become even more prominent.
The Prime Minister, whilst attending the Davos World Economic Forum, made his intentions clear…”Britain can be the reshore nation”. Bold words and ones he quickly backed up with the announcement of a new initiative called ReshoreUK.
In a nutshell, this is a new ‘one stop shop’ service run by UK Trade and Investment (UKTI) and MAS that is set to help manufacturers take advantage of the business opportunities created by reshoring.
This takes two forms. UKTI is responsible for drawing on the UK’s position as the leading European destination for foreign direct investment by working with international firms to establish a manufacturing or R&D base in this country.
Its role is to convince these organisations of the benefits of locating here and then offer support with supplier matching to help create a robust supply chain.
Our role at MAS is to work with SME manufacturers to ensure they are ready to take advantage of reshoring and new investment by providing them with strategic and technical advice, visibility of new supply opportunities and then signposting them to potential funding support to enhance capability to make it happen.
Each company will have a dedicated manufacturing advisor who will work with them through the entire process to ensure they have the processes and capacity in place to meet future demand.
ReshoreUK is also there to meet the desire of smaller firms to bring parts of their own supply chain home, firms like RDM Group in Coventry who now manufacture a re-chargeable torch for Jaguar Land Rover at its new advanced engineering centre in the city.
And it’s not just smaller businesses that are seeing benefits from this. Big companies such as Marks and Spencer have also adopted reshoring into their strategy. In October 2013, they launched their ‘Best of British’ collection selling womenswear and menswear collections, emphasising British craftsmanship and quality, and featuring a combination of British heritage, sourcing and production. This was part of a 3-year deal with the British Fashion Council to support domestic talent and increase its sourcing from the UK.
There is no doubt that reshoring appears to be the business term of 2014, but how long it will last in the industry glossary will depend on how well we maximise an opportunity many wouldn’t have believed possible a decade or so ago.