Five questions to answer before re-shoring
The trend for manufacturing businesses bringing production back to the UK has emerged strongly over the last 12 months.
This trend for re-shoring is being driven mainly by soaring transport costs and rising living standards, and hence wages, in foreign markets that have until now provided a valuable source of cheap labour.
The age of ‘mass customisation’ – making products to the liking of customers in different markets – has also meant companies gain more value by having factories closer to their markets and R&D facilities.
Other valuable benefits include better control of the manufacturing process, better lead-times, dealing with suppliers in the same time-zone (who speak the same language) and better relationships with customers who value a British seal of approval.
A December 2013 survey by manufacturer’s organisation EEF showed that one in six businesses re-shored production in-house or to a UK supplier in the last three years. In January 2014, UKTI and the Manufacturing Advisory Service (MAS) launched Reshore UK, a service to help companies bring production back to the UK.
However, re-shoring isn’t a decision that should be taken lightly. There are complex issues to consider and important questions to answer first. These include:
What is driving my business’ need for re-shoring?
It’s important to review the reasons for the decision to off-shore in the first place. Was this merely driven by labour costs, or were other factors, such as logistics, inventory levels, quality, exchange rates and responsiveness, also playing a role in the decision. Answering these questions again will give you clarity on exactly why you feel the need to re-shore. It may even be the case that those original reasons for outsourcing still hold true, but a bad supplier experience has put doubt in your mind. Finding a different supplier may be a better solution than re-shoring.
Will our circumstances changes again in the future?
It’s quite possible that the factors that have changed since the original outsourcing decision was made could reverse again in the near future. Re-shoring may bring production closer to existing markets, but does it move it further away from new emerging markets.
Do the right skills still exist in the domestic market?
Large scale off-shoring means many skilled jobs have been lost to lower cost overseas markets. Consequently, there are potential skills and knowledge gaps in many areas of the UK. Any decision to bring production back should consider whether you can pick a supplier that has the right skills to meet the needs of your business. Can the supplier handle the product and knowledge transfer process?
How can I ensure a successful transfer?
What contingency plans can be put in place with the new supplier to ensure a successful transfer, particularly in light of the potential for having an incumbent supplier who becomes uncooperative because they’re losing the contract. Ask yourself how continuity of supply can be guaranteed, perhaps through building up stock inventory to cover the transfer period, particularly if important equipment has to be moved, or whether there will need to be some parallel production.
What are the longer term commercial and contractual issues?
Re-shoring needs a robust strategic plan attached to it that looks at the long term, not just the fluctuating short-term conditions. The risks attached to re-shoring are equal to, if not greater, than those of off-shoring, so it requires significant time, effort and resource. Consider carefully the financial, legal and logistical implications.
Ginni Cooper is head of the manufacturing team at Moore and Smalley