Reshoring – Is It Really Happening and What Are the Benefits?

In this post from Milan Panchmatia, Director at 4C Associates, Milan considers the benefits of ‘reshoring’ and takes a look at some UK-based businesses which have successfully implemented the practice.

Much is being made of reshoring at the moment, but what do the actual figures look like and how are companies benefiting?

Reshoring or onshoring, is becoming increasingly popular in a number of sectors in the UK. The term refers to the practice of bringing back, or reshoring, functions previously outsourced overseas. There are a number of reasons why reshoring is a growing trend, namely a reduction in the wage gap between developed and developing economies, but also a desire to have more control over product quality and supply chain risks.

Why reshore?

A survey of SMEs by the UK’s Manufacturing Advisory Service (MAS) found that 11 percent of respondents had recalled some production to the UK in 2013, whereas 5 percent had offshored elements of production. Between 2011 and June of this year, UK Trade & Investment (UKTI) found that 1,500 manufacturing jobs had been reshored.

Not huge numbers, but in comparison, 80,000 manufacturing jobs were brought back to the USA during the same time frame. In addition, research by General Electric Capital and Warwick Business School suggests that in the next three years, reshoring could create an extra 378,000 jobs in the UK.

When asked why jobs were being reshored, the MAS survey identified four main criteria. They were, in order of importance:

  • To improve quality
  • To cut lead times
  • To strengthen the supply chain
  • Cut labour costs

There are many other reasons why a business might decide to reshore elements of its supply chain. Although cost is frequently cited as a major factor, other motives include improving consistency of inputs, reducing inventory and clustering manufacturing plants near R&D departments to increase innovation.

Diminished risk is another key element to consider when it comes to reshoring. The horsemeat scandal is a prime example of what can happen when supply chains become too complex and lack transparency. The controversy surrounding Apple’s relationship with manufacturer Foxconn is another example. Having major suppliers close to home reduces regulatory compliance risk and makes it easier to audit them.

Who’s doing it?

Earlier this year, Prime Minister David Cameron publicly backed reshoring. In a speech to the World Economic Forum, he highlighted businesses including Symingtons, which moved factories from China to Leeds, and EE, which has pledged to move call centres to the UK from the Philippines.

For companies such as EE, BT and Santander, which all reshored call centres, the move was not so much dictated by cost, but by consumer demand. The positive publicity subsequently garnered by the initiative was an extra incentive.

GlaxoSmithKline (GSK) is a prime example of a company which has relocated some operations to the UK. Back in 2012, the healthcare giant announced plans to invest £500 million in a UK manufacturing plant. This is the first time in 40 years that the company has built a factory in the country. As part of the initiative, manufacturing sites in Ware, Hertfordshire and Worthing and Sussex will all receive new equipment. A new site will also be developed to research how innovative technologies can improve the company’s supply chain.

Roger Connor, GSK's President of Global Manufacturing and Supply, highlighted the Patent Box, which enables corporations to pay lower tax on patented inventions, as key to the company’s investment. A related project has seen GSK receive £129 million as part of a government supply chain fund aimed at rebuilding British manufacturing sector.

In this instance, GSK has clearly found the benefits of onshoring outweigh those of offshoring.

No ‘one size fits all’ approach

Reshoring can and has provided significant benefits to a number of businesses in the UK, however, it must not be seen as a one size fits all solution. As research undertaken by the University of Cambridge’s Institute for Manufacturing (IfM) has pointed out, the practice of bringing home certain functions should only be one element in a business’s growth strategy.

When it comes to manufacturing, for example, businesses must weigh up the benefits of reshoring with the risk of losing key suppliers, with unique sector experience, key components and technology. Toyota, for example, manufactures its new hybrid engine in a British plant, before shipping it back to Japan. An important reminder that while onshoring can deliver cost benefits, this should not negatively affect the quality of a business’ output.

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