Benefits of Reshoring Manufacturing Back to the UK
Considerable changes are afoot in UK manufacturing. With the impact of Brexit combined with the COVID-19 pandemic still being felt across all industries, the focus of UK manufacturing is now on reshoring back to the UK.
Encouraging UK manufacturers to favour domestic production alongside efforts to beef up supply chains has been gathering momentum for a while. But as a result of Brexit, coupled with the COVID-19 pandemic, it is now seen as increasingly important to bolster UK manufacturing resilience and ensuring its supply chains are sufficient for an uncertain future.
The global pandemic highlighted the uncertainty of producing goods abroad and shipping them to UK shores in a crisis. Meanwhile, Brexit is making transporting goods from the rest of the EU more complicated and expensive. Many UK manufacturers have already moved their production back, with many more expected to follow suit in order to reduce long-term costs, improve quality and avoid supply chain bottlenecks.
How has Brexit impacted the UK manufacturing industry?
When Brexit was first announced in 2016, it caused a huge wave of uncertainty across the UK. Within the first two years after the referendum, there was a 1.5% drop in employment and a 6% reduction in UK-wide investment, with most businesses anticipating Brexit will increase costs and reduce sales.
Fears were realised when at the end of 2021, the number of UK manufacturers forced to raise prices hit its highest in two decades. Many manufacturers were highly dependent on the pre-Brexit frictionless trade opportunities within the UK to help maintain reliable supply chains. EU manufacturing workers were also frequently used to plug key skills gaps. But for much of the manufacturing industry, Brexit has increased costs, created more administrative barriers, disrupted labour flows and reduced imports and exports to and from the EU by up to 15%.
However, most of the manufacturing industry is generally optimistic that conditions will recover. Three-quarters of firms expect manufacturing conditions to improve in 2022, and 73% anticipate that the opportunities brought about by Brexit will outweigh the risks. But six years after the referendum, many manufacturers say that Brexit has either moderately or significantly hampered their business operations. Two-thirds of UK companies still fear that the customs delays and red tape that are a consequence of new Brexit import and export rules will add to the soaring costs already facing British industry.
Why UK companies are reshoring manufacturing
Amid supply chain shortages linked to both Brexit and the COVID-19 pandemic, according to Make UK, two-thirds of companies regard the UK as a competitive location for manufacturing. More than a third of companies say they would consider reshoring some of their operations within the next two years. This would enable them to rely on domestic resources and avoid the severe disruption seen with the delivery of international materials.
Reshoring UK manufacturing has been the subject of considerable debate since British companies began subcontracting production to offshore companies. But while UK manufacturing has been able to hold its own in recent years, the COVID-19 pandemic has changed how we produce, buy and sell, with many companies now calling for a UK-wide reshoring effort to bring manufacturing back to UK shores.
There are a number of reasons why more UK companies are reshoring their manufacturing, for example:
Reduce global shortages
The pandemic highlighted how many UK firms rely on an overseas supply of essential items. But it also illustrated how it's possible to shift to producing these essential components in the UK and that manufacturers are more adaptable than previously thought. Reshoring manufacturing to the UK will significantly reduce shortages during times of crisis or when there's high global demand and help the manufacturing industry and UK economy be more resilient in the future.
Faster delivery times
Most businesses rely on materials and components arriving on time. With overseas manufacturing, firms must factor in extra lead time for manufacturing and delivery, which can be anything from a few weeks to a few months, placing considerable pressure on even the most efficient business. Reshoring production to the UK means that firms can benefit from quicker turnaround times compared to ordering from overseas. Furthermore, thanks to the UK size, fast delivery times, even same day or next day, are fairly easy to come by. Also, dealing with issues or ordering additional stock can be better resolved.
A huge attraction of offshoring with UK companies is the lower labour costs. While the wage gap between the UK and many overseas competitors is closing, the UK is still unable to compete with the low prices other countries offer. However, despite the cost benefits of offshoring, a survey by Lloyds Bank found that of the 37% of firms planning to reshore their manufacturing processes back to the UK, 71% plan to do so to improve quality. Maintaining a firm grip on quality by shortening supply chains is crucial to reducing business risk, especially in a market where customers increasingly demand high-quality, bespoke components with fast delivery times.
A huge incentive for businesses to order in the UK is fewer limitations on order quantity than if they were to order from overseas suppliers. It's also often far easier to develop relationships with local suppliers than with a seller overseas. Reshoring manufacturing back to the UK, product quality, the job market and the economy can all be significantly improved.
Key challenges involved in transferring manufacturing back from overseas
Many challenges are involved in reshoring manufacturing back to the UK. Some supply chain networks have been in place for many years, even decades, and moving them can be complex, expensive and time-consuming. Sometimes, it can take several years to relocate supply chains, set up new ones and ensure the right people and skills are available to take it forward.
However, through improved digitalisation, manufacturers and the industry itself can become more agile, responsible and resilient to such significant changes. Many companies may also consider dual sourcing, which means a UK manufacturer supplies a certain volume of components, which can be increased when necessary, and the remainder is from overseas. Near-shoring is another alternative to reshoring that involves moving manufacturing services closer for better logistics and more control but without returning fully to the UK.
Ultimately, to successfully reshore manufacturing back to the UK takes time, financial investment, a bit of lateral thinking, diversification and some big changes within the manufacturing industry.
Manufacturers only need to look at what is already available in the UK regarding technology, innovation, quality, ease of access and a large talent pool to see how important the UK is for manufacturing. While there are challenges to reshoring, it provides a valuable opportunity that manufacturing shouldn't overlook as it reconsiders its supply base.
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