Make it in Britain!

It is fair to say that given the multi-year nature of economic cycles, nothing put in place now  to mitigate the effects of Brexit will have much impact in March 2019 when Britain leaves the EU.

But that is no reason not to try, because the surest way to save our national bacon will be to start earning money instead of borrowing it to spend on imports.

Reshoring is an obvious way to achieve that. Bringing production back from whichever foreign shore you sent it to acts as an invisible export, and returns jobs and investment to this country.

It is not new; for some time now, companies have been watching Chinese wage inflation, together with the rising value of the renminbi, and decided it was time to up sticks and bring production home.

You can tell when a phenomenon is going mainstream because it starts to get reported in national media. In February, for instance, the BBC reported how toy group Hornby was reshoring some of its lines to the UK because it now made economic sense to do so – not just on a straight cost-for-cost basis, but because a short domestic supply chain meant the company could be more nimble in responding to market demand.

A month after that report aired, Parliament passed the Brexit Bill, underscoring that it is not just companies who need to bring manufacturing home – the nation needs it too. But is it as simple as that?

Total cost of ownership

Harry Moser is an American industrialist who had had enough of seeing American jobs disappear offshore and decided to do something about it.

“I’d driven past dozens of companies that had been great at one time and they were gone,” he told me. “Some of the greatest machine tool companies and foundry equipment companies in the world became boarded-up factories or were converted into homes or retail parks. I could see the devastation that was happening, especially when the dollar would peak periodically and then nothing major was competitive anymore. Whole segments of industry would just be destroyed because they couldn’t compete.”

In 2010, Harry Moser established the Reshoring Initiative, a prodigiously prolific information campaign aimed at US manufacturers, laced with a national call-to-arms. And it worked. In 2001, the year China joined the World Trade Organisation, the USA was losing more than 200,000 jobs a year to offshoring.

Today, there is an annual net gain of 20,000 jobs (and rising), and the US Commerce Department credits Moser’s initiative for kick-starting the trend. He is modest enough to recognise that the tide was already turning, as rising wages in China began to make offshoring less attractive.

Nevertheless, he focused attention on the real possibilities of reshoring and created the tools to let manufacturers do the sums in the form of the ‘Total Cost of Ownership Estimator’. This allows manufacturers to compare the cost of manufacture in the US or offshore for a single item, taking into account the impact of every single element of cost in the supply chain, to level the playing field to the maximum extent.

It made so much more sense than the often-rudimentary calculations made by US manufacturers – and probably those in the UK, too – when the decision to offshore production was made.

“Now the cost gap has shrunk,” Moser said, “so if we can get their attention, they start to look at all the costs, and then in maybe 25% of the cases, they decide to bring it back. It’s the combination of the changing economics and the visibility of the trend.

People don’t do something unless they hear about it, unless someone tells them – unless they’re being burned daily by their actions, they don’t change. I think it was Churchill who said, ‘The Americans always do the right thing after they’ve tried everything else.’ It’s the same with companies.”

Moser donated the software to UK manufacturers (he’s half British and wanted to do something for ‘Mother England’) via Cranfield University who have now invited us to host it on www.themanufacturer.com.

Trunki call

Rob Law became something of a cause celebre when he was rather rudely turned down for funding of Trunki, his children’s suitcase-onwheels, by the BBC’s Dragons Den team. That was in 2006, after which the market proved the Dragons wrong by making Trunki a smash hit.

Initially, he had the product made in China, but always had the ambition to reshore production, so in 2011 he tendered the Trunki business across the UK.

“You never really know exactly what your costs are (using China) because of all the exchange rates and shipping duties and tax rates and everything else,” Rob told me. “Everyone in our industry has that, unless you’re manufacturing in the UK, so we all put up with it, but it’s hugely frustrating.

So we gave this company the chance to pitch and it came in surprisingly attractive. When you take into account our shipping costs and our duties, it actually landed at about the same price as when it was made in China.”

Perhaps there was something in the  manufacturing company’s pricing mechanisms that was not quite right, because not long after it went under. But Law stuck to his guns, bought it out of administration and today runs Magma Moulding as a ‘smart’ factory built around 4IR technologies that allows his team to offer a dazzling array of customisable options to online customers.

Law also says he is also seeing third party customers reshoring more of their own products to benefit from his company’s expertise in applying graphics to plastic, together with the incredibly short lead-times and ecommerce fulfilment expertise they have developed. China could never have delivered that.

Brexit means…

It is notable that the Department for International Trade’s GREAT campaign focuses entirely on exporting and does not place any emphasis on reshoring. Perhaps this is because exporting just means finding more customers for your products – reshoring is altogether more complicated, but there are any number of success stories one can point to, like Trunki, that demonstrate manufacturing in Britain can thrive.

For established manufacturers, like Thomas Dudley, which makes bathroom products and iron castings in the West Midlands, the move by others in the industry to ‘Make it in Britain’ is welcome.

“We have only ever manufactured in the UK, but have definitely seen a shift back in favour of sourcing British-made finished products and components within the customer bases of both our bathroom and foundry divisions,” said Andy Burton, group marketing manager. “The benefits are obvious and have been well documented.

“Working with suppliers in the UK offers a level of flexibility, responsiveness and co-operation that is difficult to achieve when sourcing from overseas. Our foundry division, for example, can design and manufacture new components in days, and can also manufacture castings, hold them in-stock on-site and despatch within 24 hours. We are also two hours from most customers and can react rapidly to any given requirement.”

Thomas Dudley are proud members of the Made in Britain campaign and believe that despite issues such as the skills gap and the need for more government support for training and R&D at the SME level, reshoring the manufacturing base will improve supply chains and lead to greater productivity.

No doubt this attitude will provide comfort to the government as it develops its new industrial strategy, with the new digital technologies at the heart of 4IR driving a step change in UK manufacturing.

As the German consultancy Roland Berger noted in their 2016 report on Industrie 4.0 transition, “Industry 4.0 will shift the focus of manufacturing from mass production and de-localization to customization and flexibility of production. Manufacturing activities will have the tendency to be conducted locally.” The Trunki success story is a classic example of that.

Yet while the UK is looking for ways to exploit these potential benefits, other countries are doing precisely the same as us. As the interim report of the Industrial Digitalisation Review suggests in its call for urgency from government, this is a burning platform, and action is needed if the UK is get its nose out in front of the competition.

Even then, it may not be enough.  Far more drastic action may be needed to level the competitive playing field for UK manufacturing.

Read this article suggesting the sterling exchange rate should be forced lower to learn more