20 December, 2024

Is reshoring right, asks Paul Cooper, director and industrial manufacturing specialist at management consultancy Vendigital.

Reshoring has become a key focus for many businesses as they aim to mitigate the effects of disruptive supply chain and geopolitical shocks – but is it the right thing to do? Before taking action, they should re-evaluate the factors that informed their current operational footprint and consider whether anything has changed.

The UK Government’s industrial strategy calls for local supply chain ecosystems to be established to help boost the economy by creating jobs and supporting the development of businesses in fast-growth sectors such as advanced manufacturing, clean energy and life sciences. Localising supply chains will also help to reduce carbon emissions from transportation, aligning with broader sustainability objectives.

A significant number of manufacturers are actively looking to reshore their production and bring supply chains back to the UK. A survey by Medius has revealed that 58% of UK manufacturing firms are moving operations from overseas and among these, 90% reported positive outcomes, including cost reductions, and improved operational security and value. However, reshoring is not a one-size-fits-all solution – it presents both advantages and challenges that should be weighed up carefully.

Reshoring can bring benefits by shortening and simplifying supply chains. For example, it can improve operational resilience and streamline transportation costs due to fewer logistical steps and shorter distances travelled. Advances in automation and AI capabilities can also bring efficiencies, making UK-based production more economically viable and helping to offset higher labour costs. Proximity to market can improve quality control and allow for greater responsiveness to customer demands.

Before localising supply chains, businesses must carefully evaluate whether reshoring would be beneficial. They need to assess the end-to-end supply chain considering key factors such as input costs, location costs, inventory, carbon footprint and customer service and consider how these would change. Reshoring can bring strategic advantages such as improved resilience and simplified supply chains, but it could also bring higher labour costs and capital expenditure (capex) will increase due to the need to invest in local facilities, infrastructure, and technology.

Reshoring involves more than just relocating operations; businesses must ensure that local suppliers and production capabilities can achieve the required scale and quality to satisfy market demand. In some sectors, such as battery production, for example, the absence of an established domestic supply chain combined with higher energy costs makes it more challenging to build a business case for reshoring. The need for raw materials such as lithium, which is mined and processed in countries such as Australia, China and parts of South America, also make reshoring less feasible and battery recycling capacity in the UK is still years away from meeting domestic demand.

Shortening supply chains can simplify logistics, reduce errors, and improve response times to market demands. However, reshoring requires businesses to ensure that local suppliers can meet the required standards in terms of quality, cost and compliance. While logistics may become simpler, sourcing local material suppliers could present new challenges. It’s crucial to assess whether local suppliers would have the capacity to meet current demand immediately, as otherwise businesses would have to allow them time to ramp up.

Customer perception of a UK-sourced supply chain can be a strong selling point for some businesses, especially those looking to capitalise on growing demand for locally produced consumer goods. However, this benefit in terms of brand perception should be weighed against potential pricing impacts, as customers may be reluctant to accept the higher costs associated with UK manufacture.

Finally, businesses involved in innovation should also consider the benefits of basing their operations close to their R&D teams. This can help to accelerate the route to market, enabling faster scaling and close collaboration, particularly in technology and AI-driven sectors. By leveraging the UK’s strengths in automation and AI, businesses can offset higher labour costs typically associated with reshoring, enhancing both innovation and operational efficiency.

While reshoring can enhance supply chain resilience, simplify logistics, and reduce complexity, it often comes with higher costs and infrastructure challenges. Businesses must evaluate their operational models, weighing up factors like cost, resilience, and environmental impact carefully. A balanced approach, supported by government incentives, will be crucial to making reshoring a beneficial strategy for more businesses.

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Businesses Accelerate Reshoring amid Uncertainties

Cyber threats, physical disruptions and global geopolitical challenges. Supply chains world-wide have been shaken over the last few years. As we welcome in the new year, three industry experts look to 2025 and what lies in store.

1. Revolutionising retail strategies

Supply chain disruptions have been a cold shower for retailers this year. From the Red Sea crisis to the recent US port strikes, these events have been a shock to the system. “Retailers didn’t realise how big of an impact it could have on their operations. They’ve been bitten, and now they’re shy,” explains Rob Shaw, GM EMEA at Fluent Commerce. “As a result, CFOs will be nervous about over-exposing themselves.”

For Shaw, it is vital that retailers learn from these disruptions, as well as taking lessons from previous industry upheavals like the COVID-19 pandemic. “Learning from these events, retailers will change the way they source goods. More near-shore supply chains could emerge as companies look to reduce reliance on the Far East.

Rob Shaw, Fluent Commerce

“The introduction of export taxes in the US may also have a significant impact on overseas trade, possibly leading to shifts in market strategies for European brands as they reconsider their expansion plans. Retailers will also be looking closer at how they orchestrate and manage their inventory to ensure they can fulfil the customer promise,” Shaw adds. “With real-time inventory data that shows what stock is available now and in back order transit, retailers can know for certain what they can promise to their consumers – and provide timely updates if disruptions occur.”

2. Preparing for cyber threats

Supply chains in 2024 witnessed their fair share of cyber threats. Dan Bridges, Technical Director – International at Cyware, explains, “as we look toward 2025, it is more crucial than ever to remember the importance of securing our supply chains against the ever-growing threat of cyber-attacks and the harm these can cause.”

Bridges goes on to explain that, “with increasing interconnectivity and supply chain complexity, breaches in one part of the ecosystem can quickly ripple through to other areas, making collective defence strategies more vital than ever to maintain business resilience. Organisations must stay vigilant and acknowledge the need to assess, monitor, and review their own cybersecurity practices as well as those of their third-party vendors. This shift will likely push companies to not only improve their own security postures but also to collaborate more effectively across industries.

Dan Bridges, Cyware

“2025 will likely see a shift toward a more interconnected, regulation-driven cybersecurity landscape, where organisations of all sizes work together to protect not only their own systems but also the broader supply chain ecosystem,” he adds. “This collective approach, driven by legislation and bolstered by technology, promises a more resilient and secure future for businesses worldwide.”

3. Optimising data management

As we move into 2025, factors such as geopolitical volatility, consumer unpredictability and climate change will continue to impact the consumer products value chain. “Therefore, the sector will need to work towards greater efficiency and agility, while also responding to sustainability demands,” notes Ted Combs, Industry Principal for Consumer Products at AVEVA. “Looking ahead, operational data management tools will be indispensable for long-term resilience. Integration with AI capabilities will help drive greater cost and operational advantages. Amid continued global supply chain volatility, companies without real-time demand awareness will risk falling behind.”

As many experts agree, AI will be prevalent throughout 2025. This is echoed by Combs, who believes, “AI is beginning to deliver significant and fast returns on investment, through enhancing data analysis which leads to better decision-making. Companies are becoming laser focused on cost and waste management, using advanced analytics and automation to optimise resource use and reduce waste. This helps firms counter inflationary pressures without sacrificing product quality. Over the next 12 months, operational data management is likely to see widespread adoption as consumer products brands strive to agnostically capture, share and visualise data from the edge to cloud, enhancing decision-making and scalability. Investing in a strong, flexible data infrastructure is crucial for future-proofing assets and maximising returns on new data-sharing technologies.”

Ted Combs, AVEVA

As we look ahead to 2025, the global supply chain landscape will continue to be shaped by the lessons of recent disruptions. Retailers are reevaluating their strategies to build more resilient, efficient and flexible supply chains. Together, these trends highlight a future where innovation, collaboration, and adaptability will be key.