There’s no place like home

Posted on 12 Feb 2009 by The Manufacturer

Contrary to some views, British electronics manufacturing has not been killed off by the cheap cost base of Asia and low cost economies. Offshoring of UK competitors to Asia has presented opportunities to the companies that remained here, and a few well placed firms now provide the essential high quality, low volume products UK customers want that are less feasible to produce in some countries. TM talks to David Taylor of ACW Technology about staying at home.

In recent years, doom-mongers have had plenty of scope predicting the demise of British electronics manufacturing. The accepted wisdom was that companies in Asia could make what was needed more cheaply, so why make anything in the UK? A steady flow of deserters ensued, and the prophecy seemed to be self-fulfilling.

While customers were being seduced by the lure of cheaper manufacturing offshore, many of the big global tier one electronics manufacturers were also abandoning British shores, chasing the tails of their customers in a bid to retain their business. These companies had convinced themselves that they could not run a profitable business with a UK factory and workforce serving a high volume customer base.

The offshore manufacturing bandwagon had talked itself into an unstoppable trend. It became the zeitgeist of the new millennium, aided by the strength of the pound against the dollar, helping to make the real cost of manufacturing abroad seem even cheaper. Many companies had naïvely jumped in feet first before the ‘low cost’ theory had actually been proven in practice.

The grass isn’t always greener

With time, many of the early adopter companies that moved their manufacturing abroad now realise that doing so has not necessarily provided all the answers, nor the rewards, they had hoped for. The wages are lower, that is true, and on paper there are other savings to be made, but these advantages are often cancelled out when the inconvenience, lack of flexibility, intellectual property (IP) risk and culture are factored in. In fact, there have been many cases where western companies have experienced serious downstream problems. Examples are surprise deliveries, unauthorised specification changes and subsequent shipment price hikes, which have come about as a result of big cultural and communication barriers.

This lesson only highlights that the grass is not always greener with low cost economies, and shows why there will always be a place for UK-based manufacturing. There are advantages of English-speaking engineers in an NPI, an interface in the same time-zone and lead times of days rather than weeks made possible through proximity.

Prudence in tough times

As we move tentatively into 2009 with a global recession coming, manufacturing considerations are changing even more. Many companies now have to audit and properly justify their manufacturing strategy as they try to safely navigate through the economic downturn. With a tighter focus on prudence and real overall cost savings some companies are realising that their adventures overseas have not been as cost-effective as they had once thought. The weak pound, against both the dollar and the euro has, in a short space of time, has increased the cost of manufacturing offshore measurably. As many companies survey their production options, the UK electronics manufacturing community is ideally placed to capitalise.

Instead of crumbling under the strain of cheaper overseas competition, an opportunistic group of UK based manufacturing companies, with the means and mindset to invest in new services and processes, have managed to grow and prosper.

Global tier one electronics manufacturers that left the UK inadvertently created opportunities for the remaining smaller, yet savvy UK contract electronic manufacturers (CEMs) to pick up business from local companies who require local support, even if they had wanted to offshore.

Whatever the economic climate, there will always be a solid base of UK-based companies who want a local supplier that can fulfill their manufacturing requirements to a high standard. Companies they can visit regularly without having to fly abroad for a single meeting to check the progress of their latest printed circuit boards; companies that do not want the stress of dealing with foreign cultures in business; and companies put off by the prospect of putting their IP at risk.

There is also the UK’s buoyant aerospace and defence industry, which needs a reliable UK manufacturing source to keep national security tight. Even during the peak of the offshoring trend, the UK defence sector has offered a steady stream of guaranteed business opportunities for those CEMs prepared to invest in passing the relevant audits and accreditations.

Over the years there has been the inevitable weeding out of weaker members of the UK manufacturing sector, but this consolidation has helped the sector become stronger.

The CEMs that remain in the UK are now perfectly placed to support a growing band of potential customers in 2009, by showing where they can make cost savings and, more importantly, add value.

Value, value, value

Companies that base outsourcing decisions entirely on potential cost reductions are certainly missing a trick.

Outsourced manufacturing service providers can offer customers more flexibility and reliability than they are able to achieve in-house, as well as an inherent desire to provide the best service possible. As specialists, they also provide investment in people, equipment and processes. Customers are buying in to an ability to use a highly skilled and experienced workforce who can offer them a service they could not replicate themselves without additional investment and risk.

ACW Technology offers a service that includes product manufacturing, global sourcing, logistics and repair. The company has built a valuable bank of knowledge and developed systems and practices that deliver outstanding value services to customers.

Companies like ACW pitch themselves as an extension of their customers’ business. In ACW’s experience, many companies in the UK electronics sector are moving up the supply chain – where they once produced their own electronics, they are providing other services. CEMs like ACW understand how to best manufacture these electronics and electro-mechanical units.

Making the right choices

Ultimately, the key to UK manufacturing’s cost competitiveness is about being selective about what to make here. There will always be times when the offshore path is economically a more viable option, but increasingly the UK can offer truly cost-competitive manufacturing.

The UK can compete against eastern European and Asian manufacturers on overall cost if companies make the most suitable products here. The resurgence in the UK’s electronics manufacturing sector comes from low volume, high value designs. These are products that typically require high levels of complex engineering input, ‘hand holding’ products that are liable to change, products that can’t cope with six weeks at sea and products that require confidentiality or IP protection.

With low volume work, companies only get one opportunity to get it right. As they don’t have the opportunities to keep on enhancing their processes, they have to have a more rigid engineering approach. In many cases, offshore manufacturing simply cannot do these types of products justice.

When and how to offshore

But the choice between lower cost production (made in, for example, China) or higher quality and convenience (made in UK) does not necessarily have to be mutually exclusive. It is often the case that there are only specific elements within a product which would benefit from the intricacies of being manufactured in Britain.

Offshore manufacturing only really makes sense if you are dealing with stable, higher volume products that have a long shelf life and require little effort in terms of engineering dialogue and customer involvement.

ACW saw the value that could be added to the process by a British-based manufacturer with a wholly-owned offshore manufacturing plant, and decided to set up our own factory in China. Rather than running in competition to our two British facilities, it complements them. It allows us to offer customers a lower cost option for the established, higher volume and lower complexity parts of our customers’ manufactured products. Meanwhile, the highly skilled, new product introduction phase will always be done in the UK, with product moving to the China facility for manufacturing only when they are stable and running in volume.

In this way, customers can have the best of both worlds: the cost savings associated with offshore manufacture but without all the risks. Customers can benefit from dealing with only one supplier, face-to face, in their first language, and with the guaranteed deadlines and reduced lead times that result from ACW being the owners of the Chinese plant, rather than just the partners.

The UK’s the way

Even though, for some, the last rights for UK electronics manufacturing had been read several years ago, the sector has stayed alive and indeed prospered in places.

Its competitiveness lies in the realisation that often value is more essential than cost and for the right low volume, high value products, British manufacturing competence combined with UK design expertise will achieve the best results.

The UK will not always be the right choice, but over the next 10-15 years it will remain a viable source of manufacturing expertise.

David Taylor is the sales director at ACW Technology in Southampton.