Don’t reshore, rightshore

Posted on 25 Feb 2015 by Jonny Williamson

While shifting global economic conditions have made reshoring production back to the UK more attractive for some businesses, it’s not necessarily right for all. Companies should consider their options carefully and ensure that any changes they make to their operational structure will continue to meet the needs of the marketplace, notes supply chain specialist.

Roy Williams, managing director, VendigitalqRoy Williams, managing director, Vendigital
Roy Williams, managing director, Vendigital – a firm of supply chain and procurement consultants operating globally and across industry sectors.

A recently report on reshoring by Ernst & Young, Time to seize the opportunity highlights, a ‘once-in-a-generation’ chance to add billions to UK GDP and rebalance the national economy.

The study considers the period up until 2025 and estimates that the aerospace, defence and automotive industries could see the biggest benefit from the current reshoring trend.

However, I think there are likely to be pros and cons associated with reshoring production back to the UK, and it’s not a decision to be taken lightly.

When reviewing a company’s operational footprint, a number of factors should be considered before taking a decision about where to make efficiencies or drive value.

In today’s fast-moving markets, proximity to customers can be a significant advantage. Locating your factory close to your key marketplace will allow the business to work to shorter lead times, which tends to require less stock.

This is important because with interest rates in the UK expected to rise this year or the next, keeping stock in the domestic supply chain could soon carry more cost.

Deciding where to locate your production facility also requires a bit of foresight and an understanding of how your product portfolio is likely to evolve in the future.

If you are planning to invest in new product development, it’s a good idea to keep both your own and your suppliers’ R&D teams close at hand so they can inform the process and bring next generation products to market quicker than before.

Reshoring - Made in EnglandFuture technologies should also be considered, particularly if there is likely to be a move to additive manufacturing, which could allow an operational structure that is more geographically-spread, comprising a number of smaller factories rather than a single, larger facility.

Businesses should also take care to ensure that local emotion is removed from the decision-making process as clearly some changes could result in job losses.

Ideally, a production facility should also be located close to a highly-competent, expert supply chain. This will also ensure a shorter supply chain, giving the business greater control over quality and a reliable supply source.

Any move to lengthen the supply chain on the other hand could increase risk and impact on quality.

Of course, some shoring decisions will be easier to reach than others. For example, if the business relies on the supply of electronic components, reshoring a production facility from Taiwan or Asia back to the UK is unlikely to bring efficiencies.

Conversely, if a production facility relies on supplies of automotive or aerospace components, the UK may be exactly the right place to locate, due to its established supply chains and access to skilled labour.

Polymer componentry is becoming increasingly common in the electronics industry.
If production relies on supplies of automotive or aerospace components, the UK may be exactly the right place to locate.

Costs are an important consideration too. Of course, wages need to be considered and while the difference in the costs that apply in the UK and Asia has closed significantly in recent times, labour can still be bought much more cheaply in some parts of the world.

Businesses that use more energy may also find that locating production facilities in the US can drive value because access to shale gas is helping to keep energy prices low.

Despite the variety of factors that should be taken into account when deciding where to locate, the reshoring trend seems to be taking hold.

Earlier this year, PwC published a report estimating that it could generate 200,000 jobs in the UK over the next 10 years.  A recent report by EEF also found that one in six companies have reshored production back to the UK in the past three years.

Find out more about Vendigital by clicking here.

Instead of rushing to reshore operations, businesses should be assessing their supply chain globally and basing any restructuring decisions on sound strategic considerations.

Instead of ‘reshoring’, ‘rightshoring’ is always going to be the best way to secure a more successful and profitable future.