Is onshoring the new offshoring?

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Gavin Smith, head of manufacturing at Plextek, looks at the trend to ‘manufacturing from home’ and asks if it provides more security in the supply chain.

The current geopolitical climate is causing companies to reconsider their offshoring strategies. It’s fair to say the last 12 months have provided some of the most challenging circumstances for manufacturers and where companies have chosen to outsource their production has been a key factor. Aligned with unpredictable forecasts, reduced electronic component availability and logistical nightmares, to name but a few, it is no surprise that the focus is on how these areas can be improved and de-risked.

China, the industrial manufacturing powerhouse, has had difficulty in addressing these problems, while further disruption is being caused by rolling enforced blackouts to limit power consumption, effectively limiting the working week and capacity. This is something that could continue as the requirements of global climate change put pressure on China to restrict bringing on-line more fossil fuel power stations.

Combined with port restrictions in Tianjin and shipments being ‘bumped’ off vessels to create further shipping delays, it’s easy to see where more local manufacturing becomes attractive. Global players such as Apple and GoPro that have been expanding local facilities and moving manufacturing closer to their key markets have seen the benefits of being able to exercise a more strategic manufacturing vision. 

Over recent years, the direct costs of manufacturing in Asia have steadily been increasing. it is not uncommon for workers to demand pay increases in excess of 30%, not just annually, but multiple times a year. The indirect costs, those associated with manufacturing added to the component and labour elements, have also been rising at a much faster pace. Ethical companies in the Far East are having more environmental and worker rights legislation put on them that are impacting margins and forcing them to pass on costs. 

So, what are the benefits of onshoring your manufacture to the right partner: 

  • Logistics becomes simpler for the finished goods; they are unlikely to get stuck in the Suez Canal, for example, holding up your inventory for months whilst insurance companies argue. 
  • Forecasting your requirements will be simpler and can be more responsive to changes. You would not need to cater for six weeks at sea, which directly impacts the value of inventory you need to secure ahead of time. 
  • Ease of introduction of new products and responsiveness in your time zone
  • Quality can be more simply managed without the need for third-party inspections or permanent staff in the factory. With the travel restrictions constantly changing at short notice, factory auditing overseas is becoming more and more outsourced and distanced.
  • Manufacturing is more sustainable. According to the WWF (World Wide Fund for Nature), around half of the UK’s real carbon footprint is accounted for with international travel and associated with the manufacture of goods overseas but imported to the UK. Manufacturing local to your market will positively contribute to countries achieving Carbon Net Zero targets sooner. 

Many UK based manufacturers are responsive and can provide excellent quality. And when you consider the Total Cost of Manufacture beyond just the ex-works ‘Cost of Goods’, they can also be competitive. The UK in 2020 had the ninth-largest manufacturing output in the world and has continued to grow despite considerable external threats.

Electronic manufacturing in the UK can compete through the implementation of automation and adoption of digital technologies. Gartner surveyed supply chain leaders last year and indicated that a third of them were moving at least some of their manufacturing before 2023. With recent shortages and struggles to supply you can reasonably infer that number will be greater going forward.

So where do you start reviewing your third-party supply chains, identifying risks and suggesting ways to mitigate them? You need to make sure the right local party is selected and capable of being able to support your requirements and strategy going forward. It’s important to have full and detailed scrutiny of your manufacturing to deliver a holistically beneficial cost foundation for your products. It may not be for everybody but now is the time to consider manufacturing from home.

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