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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