Manufacturing and Automotive

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Reshoring: the key to manufacturing resilience?

Reshoring is on the rise as manufacturers react to the pandemic, Brexit and international trade conflicts. We hear from industry insiders about the pros and cons of shaking up their supply chains.

Last updated: 22 Oct 2020 7 min read

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Luxury carmaker Aston Martin Lagonda opened a new manufacturing facility at St Athan in Wales in December, having decided against various options overseas. © Aston Martin

  • A Make UK survey has found that nearly half of manufacturers intend to increase their use of UK-based suppliers in the next two years
  • Drivers such as the need for flexibility, better quality and shorter lead times are starting to outweigh the benefits of production in lower-cost environments overseas
  • Industry 4.0 is also an integral factor: the tech can help to boost productivity, cut labour costs and reduce transit times to customers

The joys and occasional perils of being at home have dominated our lives in 2020 as offices and pubs close in the fight against coronavirus.

UK manufacturers are also increasingly turning homewards as the virus and continued uncertainties over Brexit and international trade wars highlight global supply chain risks.

“We need to prepare for future global shocks and reconsider our supply base,” says Julia Moore, chief executive of Reshoring UK, an industry group connecting UK manufacturers and suppliers. “The pandemic has made the UK feel vulnerable, unable to meet our requirements or even source them from around the world.”

According to a Make UK survey this summer, manufacturers are increasingly turning to UK-based suppliers, as senior campaigns and skills policy manager Bhavina Bharkhada explains.

“Reshoring has moved up the agenda,” she says. “We’ll begin to see a shift from ‘just in time’ to ‘just in case’ manufacturing. Over a third of manufacturers intend to moderately increase their use of UK-based suppliers in the next two years, with a further 12% indicating a significant increase.”

Manufacturers across all sectors, particularly in high-tech areas such as aerospace and electronics, are actively pursuing reshoring, adds Moore.

Other drivers – such as the need for flexibility of local supply, better quality of goods and shorter lead times – are starting to outweigh the benefits of production in lower-cost environments overseas.

“There’s a lot of capability and competence in UK manufacturing,” Bharkhada says. “With the right partners working together, there’s nothing that cannot be made here.”

A change in mood

Tony Hague, chief executive of contract manufacturers PP Control & Automation, has certainly benefited this year from new partnerships due to reshoring.

“From the first quarter, companies have been looking for suppliers closer to home,” he says. “We’ve won around £3m worth of work this year from large OEMs in different sectors who were previously outsourcing to places such as Estonia or India. There’s a real mood and move and it’s only getting stronger.”

Hague says its investment in apprenticeship schemes and technology helped. “You have to be competitive. That doesn’t mean being as cheap as a supplier in Estonia, but being agile and automated,” he says.

Dr Sam Roscoe, senior lecturer in operations management at the University of Sussex Business School, agrees that the growth of Industry 4.0 technology is integral to reshoring. That’s because the tech can boost productivity, cut labour costs and reduce transit times to customers.

“Technologies such as 3D printing or additive manufacturing are being used to make sub-assemblies and aircraft structures in aerospace and automotive,” he says. “The UK is a great place for innovation, advanced manufacturing facilities and academic link-ups.”

“There’s a lot of capability and competence in UK manufacturing. With the right partners working together, there’s nothing that cannot be made here” Bhavina Bharkhada, senior campaigns and skills policy manager, Make UK

But there remain challenges for manufacturers looking to reshore.

According to Reshoring UK, manufacturers have sourced from overseas for so long they have lost the “visibility of the UK suppliers that can meet or adapt to suit their requirements”. It can also be costly to ‘up and move’ supply chain networks that have been in place for decades.

Roscoe says pharmaceutical manufacturers will find it the hardest to relocate facilities. “There’s a lot of regulatory oversight involved, such as ensuring new suppliers are compliant. It can take between three to five years,” he says. “Aerospace is also a slower-moving industry that takes it time in changing supply chain configurations. One I don’t expect to reshore is clothing manufacturing.”

Despite growing concern over the exploitation of garment workers, Roscoe expects supply to remain centralised in Asia because the cost of labour is so low.

“From what I’m hearing from the clothing industry, those supply chains are unlikely to change,” he says. “Very labour-intensive industries will be more constrained in terms of moving their facilities.”

Nearshoring versus reshoring

The UK is also not fully self-sufficient in many essential raw materials, such as cobalt used in mobile phones and specialist infrastructure.

Hague says some of the larger castings required for machine building can’t be replicated in the UK as the foundries and expertise no longer exist. As such, global suppliers, whether in Europe or further afield, will remain important.

Nearshoring, or the transfer of production facilities to sites closer to the point of consumption, could be a solution for some. It often means moving sites or suppliers to Europe from the Far East.

“With Amazon Prime providing the model, there exists a level of expectation on the delivery of goods within days,” says Moore. “Nearshoring has the obvious advantage of reducing the number of miles and the time that parts are travelling.”

Roscoe has proposed the idea of parallel sourcing where, for example, a manufacturer would have a third of its suppliers or a site in the UK and the rest in another location overseas. “It takes in where your customers are and where your facilities and suppliers need to be to continue supplying if anything goes wrong,” he says. “You can ramp up or ramp down in separate locations if demand fluctuates.”

Manufacturers considering reshoring need to carry out detailed cost analysis, he adds. “Look at the total landed costs of your goods,” he says. “Labour costs might be low in China, but what is the cost of holding inventory and the spikes in demand you’re not responding to? This is about spreading your risk and surviving a second or third virus wave, a no-deal Brexit or trade war.”

The value of Brand Britain

Luxury carmaker Aston Martin has a dual-track approach. It manufactures its cars in the UK, having reshored production of its Rapide model from Austria in 2011. More recently, when it came to manufacturing its first SUV, the DBX, it built a new factory costing £200m in South Wales.

“We looked at sites in Eastern Europe, the Middle East and Asia,” explains James Stephens, director of government and external affairs at Aston Martin. “The cost per car made was much lower, but we felt making it in the UK was better for our brand. British luxury cars made in the Far East doesn’t have the same ring.”

The group’s supply chain is more European, with the average vehicle having 90% of parts sourced from the continent, including 55% to 60% from the UK.

“Car companies work on low margins of around 4% and need to keep costs low. The tier one and tier two suppliers are not in the UK any more,” Stephens says. “There are good opportunities for reshoring, but the UK should only play to its strengths. There’s no rational reason to bring nuts-and-bolts manufacturing back, as it’s much cheaper in Eastern Europe. But we have great niche suppliers in aerodynamics, autonomous vehicles and powertrain. There’s a reason so many Formula 1 teams are based in the UK.”

Aston Martin is considering reshoring more parts following Covid and potential delays after Brexit, says Stephens.

“We’re a just-in-time manufacturer. It’s about managing trade flows and getting parts line-side efficiently,” he says. “There are good opportunities to reshore around electrification and powertrain. We’re looking at whether our engines, which we get from Germany, could be supplied from the UK. But we need to continue to spread our risk with suppliers in the West and East.”

Bharkhada of Make UK agrees. “It’s about building smart and resilient supply chains,” she says. “Because it’s not a question of if another geopolitical event will occur, but when.”

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Manufacturing and Automotive