Reshore or not to reshore, that is the question?

Posted on 20 Mar 2024 by The Manufacturer

Greater support for capital investment and skills development announced in the government’s new manufacturing strategy should help domestic production achieve cost parity with work carried out in overseas locations. However, uncertainty still abounds across the manufacturing sector. David Hughes, PLM Specialist at PTC explains.

With the mid-November announcement of its Autumn Statement and accompanying Advanced Manufacturing Plan, the UK government laid out a strategy for transforming the UK into ‘the best place in the world to start and grow a manufacturing business.’ This could well give firms the impetus to bring production and manufacturing back home, commonly known as reshoring.

It’s a bold promise, announced with a predictable level of political hyperbole. But at the same time, the plan outlines some of the first clear measures that could help lower two of the highest and most persistent barriers UK manufacturers face when it comes to reshoring: the need for capital investment and access to homegrown digital skills.

So, what is reshoring? In a nutshell, it is the practice of bringing back operations and jobs to the home country from overseas and it has a lot going for it. Wage inflation in many global locations has squeezed the labour arbitrage opportunity that overseas manufacturers had previously offered UK firms.

Geographical proximity, by contrast, not only reduces supply chain risks but also transportation requirements, delivering a welcome boost to corporate sustainability efforts. Other benefits include time zone and language alignment between partners, shorter lead times and potentially, better service.

Positive brand perception can be a factor, too, with UK manufacturers eager to promote their products to customers as being ‘Made in Britain’.

The fact remains, however, that despite years of talk about reshoring, many UK manufacturers still feel it is out of reach for them. After all, bringing manufacturing work back to the UK requires substantial investment in the equipment and skills needed to carry it out, during years when extremely uncertain economic conditions have made any risk-taking almost unthinkable.

On top of that, in order to offset any cost disparities associated with manufacturing work being carried out in Birmingham or Bradford, for example, rather than Pune, Shenzhen or Guadalajara, domestic companies need to achieve even higher levels of efficiency and productivity, which can only be realised by embracing digital transformation and leaning more heavily into automation, artificial intelligence (AI) and augmented and virtual reality (AR/VR) technologies.

New answers to persistent problems

 The Advanced Manufacturing Plan provides some answers on how these difficulties might be overcome.

Possibly the biggest policy win for the government was news that full expensing is to be made permanent. That means businesses can claim 100% of capital allowances on qualifying plant and machinery investments, and for every £1.00 that they invest in IT, machinery and equipment, they can claim back 25p in corporation tax.

Alongside this, the Made Smarter programme is to be expanded. This initiative aims to help small and medium-sized enterprises embrace the industrial digital technologies they need to drive up productivity, increase turnover and quality, and create new, high-skilled jobs that focus on building innovative products.

Martin Haynes, MD of Alucast, another firm that is riding the reshoring wave

Thousands of SMEs have registered with the Made Smarter adoption programme since its 2018 launch, benefiting along the way from expert advice, digital road mapping, match-funded grants and leadership training.

In order to support more of them, the government is committing up to £16m in 2025/26 to offer the scheme to all regions in England, before working with the devolved administrations of Wales and Scotland to explore further expansion.

This will also involve the reintroduction of digital internships – placements at SME firms for students from relevant courses such as industrial digitalisation and intelligence systems.

On the subject of skills, the government also announced £50m over the next two years to increase the availability of apprenticeships in engineering and other key growth sectors. This is an area in which manufacturers have long been calling for more government support – we just need to see if any of this funding filters through before a potential General Election later this year.

Reasons for optimism

What is very clear is that achieving the goals of growth, productivity and innovation no longer depends so much on a firm’s ability to access human capital at the lowest possible cost — the traditional driver of outsourcing in recent decades.

Instead, achieving these objectives is more an indicator of a manufacturer’s proficiency at implementing digital technologies and then allocating the optimum blend of machine automation and human skills to manufacturing tasks.

PTC has seen many manufacturing companies come to realise that it no longer makes sense to send work offshore for cost reasons, if that work can be done just as cheaply at home, by doing it in new ways.

It’s their use of technology, within the context of industry 4.0/5.0 initiatives, that so often proves the catalyst for such insights.

Generative design techniques bring to light better ways to build parts. Additive manufacturing opens the door to faster turnaround times and more sustainable materials. Internet of Things (IoT) and robotics projects usher in automation that reduces (or eliminates) the need for human intervention on certain tasks.

In many cases, these technologies lead to repeatable, consistent processes that reap even better results in terms of quality.

Digital transformation can also be good news for employees too, because it provides them with information flows that are more likely to be up-to-date and relevant to the job at hand.

Their work is safer and more satisfying, as they are freed up to focus on complex analytical tasks that make the most of their skills and experience. And many of our manufacturing customers have already demonstrated how effective AR and VR technologies can be in getting them up to speed on new tasks, providing countless upskilling and reskilling opportunities.

The challenge for domestic production is to embrace all these advancements with confidence. If management teams can do this, and the jury is still out, there is the real possibility of increasing parity with traditionally low-costs countries.

UK firms need to think differently and place the right bets on increased operational intelligence.

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