Hot topic: Revelling in reshoring

Is it an optimistic daydream to believe that the UK can really turn the tide of offshoring and tempt companies to bring manufacturing back on a large scale? TM investigates.

Real reshoring

TM talks to three firms with real reshoring experience:

Vent-Axia

Vent Axia, which makes fans and ventilation systems, reshored production of its domestic fan products in January 2013.

The firm made the headlines in January this year when David Cameron visited its Crawley factory to celebrate a successful year of production the same day that he delivered his speech at Davos which launched ReshoreUK.

Remembering the decision making process which led to reshoring Paul Davies, group operations director at Volution, Vent-Axia’s parent company tells TM: “The idea to bring this manufacturing back from China originated in the General Management Forum and developed due to many drivers.

“Firstly, we could see that the costs of manufacturing in China were increasing and we knew that we had to maintain leadership in service, which can prove tricky when shipping product from the other side of the World. We needed to be able to control stock to meet demands.

“In addition, we had just developed a new high performance chassis for our fans and were keen to return the manufacturing to the UK so that we could improve our products.

“Lastly, I came into the role as group operations director and a group perspective facilitated the reshoring.” Commenting on the most challenging aspect of the move, Davies says: “Balancing stock was the hardest part. We needed enough stock from China in the UK to ensure we did not run out of products. However, once the new improved products were being manufactured the old stock would be obsolete. It was a tricky balancing act.”

For detail on the benefits Vent Axia has experienced from reshoring production, including a £250,000 reduction to working capital, see an interview with Paul Davies at bit.ly/VentAxiareshoring

Rustins/Hornby

In 2011 Rustins, an SME paint manufacturer in north London won a contract with toy manufacturer Hornby to make the small pots of paint used by hobbyists to decorate miniatures and models like Airfix planes which Hornby also owns.

Hornby had become dissatisfied with the responsiveness and quality of the Chinese manufacturer of its Humbrol paint brand and after an intensive tendering process Rustins won out thanks to its expertise in paint formulation and its proven capability in filling small pots of paint – Humbrol decorative paints come in 14ml and 50ml pot sizes.

Rustins had to invest “hundreds of thousands” in a new filling line and specialist lid fitting equipment in order to fulfil Hornby’s expectations according to the SME’s MD Edward Krawitt. However, a strong market response to the reshoring has paid off for both Rustins and Hornby he assures.

Furthermore, the investment process created trickle down benefits to UK industry since the specialist lid-fitting kit was purchased from Dewsbury-based Mount Packaging, a British machine builder.

Winning the Hornby contract saved and created jobs at Rustins – around seven in total – and while precise figures were not available, it was confirmed that millions of pots of UK-made Hombrol paint are sold every year contributing significantly to the firms £7m annual revenues.

Eaton Hydraulics

At Eaton Hydraulics, the global manufacturer of pumps, valves and motors, growing pressure for localisation from its customer base sparked a review of global manufacturing strategy.

Tyrone White, Eaton’s UK manufacturing manager, says the British business is doing well out of the rethink.

Global approval has been given to relocate machining work to the UK from China to reduce overall costs and access better skills. There is also a $2m investment being made to bring assembly work back from Mexico. “This additional work will be worth around $1m extra sales for the UK business and will put us on a better footing to justify even more future investments in the UK,” says Mr White.

This is already proving to be the case with plans to launch a new global product – an electro-hydraulic valve – from the UK recently being confirmed. White says he expects to see around 5% job growth this year thanks to reshoring initiatives and explains that the challenge in creating more such success stories is to “justify the upfront investment required by offering a lower overall cost. Much if this is down to investment in automation.”

Interest in instances of reshoring escalated in 2013 with several surveys and reports seeking to prove that we can now talk about a strategic trend in industry, rather than a collection of disparate anecdotes.

In 2014, the issue of reshoring has quickly become dominant in the national and industry press. David Cameron’s announcement of ReshoreUK helped to put the topic in the headlines, but just how easy will it be to persuade more firms to move significant amounts of manufacturing away from locations where they have existing investments, to the UK with its array of skills gaps and common reluctance in the SME base to make capital investment?

EEF’s report, Backing Britain – A manufacturing base for the future, was launched on March 3 and supports a focus on reshoring at the trade body’s National Manufacturing Conference.

The report was researched and compiled in partnership with legal firm Squire Sanders. It seeks to clearly define

the financial, legal and practical issues that businesses identify as challenges to reshoring so that they can be

methodically overcome.

Commenting on the survey’s findings Rob Elvin, a partner in Squire Sanders’ global manufacturing industry group, says: “Products of quality, high levels of customer service and brand reputation are key to the success of so many UK companies and this EEF survey underscores how important those factors are in giving UK manufacturers a competitive edge in a global market.

“Moving any manufacturing across borders is a significant decision for management,” Mr Elvin continues. “But, as this report indicates, for those UK manufacturers that judge it right for their businesses, the reshoring of production can bring a number of benefits.”

Elvin says that the reshoring phenomenon is not unique to the UK but something Squire Sanders has seen in other jurisdictions where localisation of globalised production has become attractive.

Comparing the challenges that UK companies have in developing a reshoring business case to those foreign examples however, Elvin says: “In the UK, the focus is clearly on a number of specific issues: energy costs, workplace regulation and costs, the complexity of tax and hurdles in the planning process.”

Supply chain risk management firm Achilles would add that supply chain visibility is a big hurdle for potential reshorers. Adrian Chambers, Achilles CEO says: “Knowledge is power and UK manufacturers can only reshore suppliers if they understand who is in their supply chain now, and implement a coordinated system to register, benchmark, audit and select potential suppliers in a consistent way.”

His comments come on the back of research, conducted by Achilles and independent consultancy IFF, which shows that less than half of UK manufacturers have engaged in supply chain mapping exercises. The research also highlights that 67% of UK manufacturers are not confident of the quality and health and safety rigour at tier 2 and below in their supply chains which including a hefty number of foreign firms – overseas suppliers account for 40% of the UK manufacturing supply chain according to Achilles.

Achilles recommends that companies invest in more sophisticated supply chain management systems having found that 58% of firms surveyed still used paper based management.

For EEF and Squire Sanders the trick to increasing reshoring feasibility is in the hands of policy makers.

“What we can take away from this is a need to support all businesses,” sums up Elvin. “By reducing unnecessary and complex regulation, whether in the area of tax, pensions, employment law and immigration, property development and infrastructure investment. Ultimately businesses will succeed where there are incentives to innovate and grow locally and where there is access to a flexible and skilled labour market.

ReshoreUK

However, while policy makers hash out a tax and regulatory framework which matches government rhetoric in supporting reshoring, a new body ReshoreUK, has started work on the ground to help match-make potential reshorers with local suppliers and assist in finding suitable locations for reshored factories.

ReshoreUK is a collaborative enterprise run by UKTI and the Manufacturing Advisory Service (MAS).

“Essentially it’s a referrals agency,” explains Stephen Barr, head of MAS and with special responsibility for the establishment of ReshoreUK.

“Since the MAS barometer in November last year showed increasing SME reshoring activity we have seen reshoring on a much larger scale and increasingly with larger companies,” continues Mr Barr. (Read about the results of the November 2013 MAS Barometer at bit.ly/MASReshoring)

The time was therefore ripe for the launch of ReshoreUK which brings stronger collaboration between the work that UKTI has traditionally done with larger firms and the SME focus of MAS says Barr. MAS consultants will now work closely with UKTI “to see what hot opportunities they have in the list of large

UK companies that they account manage. We’ll also be identifying a short list of foreign direct investors who might have operations they could bring back here.

“Because MAS is so well connected with the UK supply base we can now help to put them in touch with the right kind of people.” Barr sums up.

ReshoreUK has been put to work quickly. Almost in sync with its launch, luxury car manufacturer Aston Martin announced that quality issues will see it reshore parts of its supply chain and

MAS will help find the suppliers it needs in the UK. Other enquires from SMEs seeking new contract opportunities, or looking to reshore their own supply chain and manufacturing are also coming thick and fast says Barr.