Turning the reshoring trickle into a flood: we should reshore whole supply chains, not just individual companies
In a speech at the World Economic Forum (Davos, UK), Prime Minister David Cameron announced the creation of Reshore UK, an advisory service to help companies move their manufacturing operations back to the UK.
The practical challenge now is to turn the trickle of companies that are currently reshoring into a flood.
To do so, we need to first understand what we are trying to achieve through such an initiative. The argument that reshoring will help us close the cost-gap with China is a weak one, as China remains significantly cheaper and is improving its productivity. Instead, we should think of the supply chains as the main driver.
Through reshoring, companies bring production closer to the end customer. This is a distinct advantage in the digital age, where longer supply chains can be too slow and inflexible to meet consumer needs as Zara has proved in retail. Reshoring also helps reduce logistics costs and carbon footprints, and lessens the risk of disruption in supply chains.
This is not, however, to say that there is no risk attached to reshoring. Through heavy outsourcing over the last 15 years, many key components are largely produced overseas, limiting local sources of supply. In the automotive industry alone, 70% to 80% of parts need to be imported and we know that the Automotive Council, through its Supply Chain Group, is currently seeking to reduce this amount. It is also worth noting that high energy costs in the UK, which does not have the shale gas boom seen in the US, may dissuade some energy-intensive companies from moving to the UK.
Notwithstanding this, the reshoring opportunity remains significant and there are immediate gains to be achieved, particularly for the UK medium-sized businesses who will bring an entire cadre of smaller companies with them.
My advice is therefore that we focus on the strategic reshoring of whole supply chains, and not just individual companies.
To find out how PA can support your reshoring activity, please contact us now.