Offshoring vs Reshoring
As we move through the Coronavirus pandemic an issue which has been front and centre in the psyche of the nation is the lack of Personal Protective Equipment (PPE), ventilators and critical components for medical devices, and the impact which has been seen throughout the NHS and for many key workers, the result of high demand on international supply chains.
British manufacturing has depended upon overseas production for decades, with financially savvy leaders attracted to the greater value offered, but when demand flexes the distant supply side can be left wanting, with major consequences as have been seen in recent months. An extraordinary event such as the Coronavirus pandemic means that major disruption in supply chains are inevitable for most businesses in the short and midterm and so it is worthwhile and timely to consider the impact that location of production can have on supplying the basic needs of society.
Whatever the reason for offshoring production the end result is often the same. Manufacturers are left with reduced control over quality, cost and delivery and are unable to influence or incur any change when problems do occur. Offshoring can provide beneficial links in a new geography and in stable markets is a highly suitable way to produce high unfluctuating volumes. Products or parts are likely to be cheaper but can see cash tied up for extended or unplanned periods, in return for high stock levels that hamper cashflow and reduce stock turns.
Unpacking “price” as an offshoring driver
Unquestionably, price is the key driver for offshoring and no reshoring will take place without at least some mitigation of this key factor. Favourable pricing in low cost countries is not only driven by demand but as a consequence of environmental or health and safety factors, as well as the cost and availability of raw materials, presumed production labour content and rate or the location of logistical considerations of suppliers or customers.
A pivotal point in addressing price is at the product design stage. The means of production and therefore the labour requirement are generally crystallised at the point of design approval. Given that the labour requirement is often the largest cost-component in any product, careful consideration at this point can redefine entire supply-chain decisions.
Comprehensive Design for Manufacture or Automation exercises can make a labour-intensive product bound for production in low cost countries, into a product which has a UK-viable production destiny for the right supplier who has embraced integrated technology and automation to good effect. These suppliers exist in the UK, and their numbers are growing. This is of course not easily achievable for all products, but worthy of investigation.
Additive Manufacturing is another option to explore. It is certainly no panacea to reshoring, but nevertheless it should be given renewed consideration to appreciate what current methods and processes could provide viable production solutions when supported by different and leaner business models.
The social and environmental impact
The environmental and social consequences of offshored manufacturing are well known, particularly when production takes place in less stringently regulated countries. As the sustainable manufacturing agenda take priority for increasing numbers of owners and investors, then it starts to highlight the validity of the moral arguments of retaining work in the UK and investing in appropriate green technologies (often grant funded), which can eliminate or reduce the environmental impacts and allow responsible and commercially feasible production back in the UK.
Reshoring could potentially contribute to the reduction of a manufacturer’s global carbon footprint. This would not only be attributed to the obvious logistical related reduction but also to the potential use of green energy to fuel the means to production, something that many developing economies have not yet embraced.
A holistic approach
The phrase of ‘Right-Shoring’ has been discussed over recent years, which aims to take into account the ‘true full cost’ of any potential offshoring or reshoring decision. From macro issues such as the stability of politics and currencies, to tariff changes, exchange rates, inflationary forecasts, to current and future emerging market locations, to micro issues such as logistical practicalities, skills and material availability. All these considerations however uncontrollable, should all be made, in order to provide the widest possible viewpoint of any decision. It may be the case that a product that is currently made in China, should not necessarily come back to UK based production but maybe central Europe as it provides a better ‘all-round’ solution for all sorts of nuanced reasons not least of all reduced lead-time and cashflow advantages. The devil is often in the detail, and the detail needs to be analysed and evaluated thoroughly.
Thorough evaluation is about applying the widest possible risk management considerations to any decision. The most widespread QA management system ISO 9001-2015 demands that business continuity is thoroughly addressed, and external risks are evaluated in order to provide ‘business as usual’ in the event of leftfield threats. This issue will doubtless be revisited by many more manufacturers in light of the pandemic and more radical preventive measures around reshoring will likely be proposed instead of dealing with the numerous complexities of managing overseas supplier operations.
An interesting viewpoint on the subject of reshoring, is the re-emergence and extension of the idea of ‘protected status’ of manufacturing products which are considered critical to the country in the event of emergencies. This idea could be extended out selectively to more goods which are needed on a continual national basis, which if designed and manufactured effectively and economically, could allow the commercial benefit to be retained within the country. Some food for thought, in what may be a watershed moment in industrial and international trade policy for the future in light of the pandemic and Brexit.
Clearly not everything should or indeed could be reshored but imagine the impact for UK business if just 10% of currently offshored products could be reshored on the basis of some of these ideas listed. As Greater Manchester prepares to Build Back Better, now is the time to reconsider who should have control of our vital supply chains.
Steve Wilkinson, Manufacturing Advisor
Starting out as an Engineering Technician Apprentice and graduating in Manufacturing Systems Engineering, Steve has worked in and around engineering and manufacturing for over 28 years.
In this time, he has been involved in a multitude of change projects in a wide range of sectors and scale of businesses, in both the UK and in Europe. In roles ranging from operational to strategic levels and in areas spanning:
Technical R&D,Process Development including Process Simulation, Training, Coaching and Mentoring,Strategic Development
He is passionate about people and skills development at all levels in the industry to drive effective change.
To view Steve’s full profile including technical capabilities and industry experience, pleaseclick here.
