It’s a tough time to be a business in the UK. The pandemic occurring right after Brexit has deeply affected our supply chains, regardless of industry. Given the current business landscape, it’s no surprise that UK businesses are attempting to change their supply chains to ensure they stay competitive and their customers stay happy.
What is reshoring, and why are UK businesses bringing their supply chains home?
With so many issues throughout the global supply chain, many UK businesses are looking to reshoring to help restore some sense of normalcy.
Reshoring is the process of returning production and manufacturing to the company’s original country. Essentially, it’s the opposite of outsourcing and offshoring, which the UK has seen a lot over recent years. But even as big-name British brands like Dyson take their businesses overseas, all signs point to reshoring to help UK brands succeed.
Britain is currently the 9th largest manufacturing country in the world, producing around £183bn of products and employing over 2.5 million people. As the global supply chain becomes more complex and unreliable, we expect these numbers to grow thanks to reshoring.
Bus manufacturer Alexander Dennis (ADL) is a great example of UK reshoring. In January 2021, the company announced that it was bringing manufacturing back to the UK. The chassis for both BYD ADL branded single- and double-decker electric buses were previously manufactured in Hungary and China before being shipped to the UK for assembly.
While production costs are lower in Hungary and China, ADL hopes to deliver products faster by having the entire manufacturing process in the UK. This change also allows them to reinforce their branding by showing a real connection between the company and its home.
The benefits of reshoring for UK businesses
In our search for the cheapest way to produce products, businesses looked overseas for cheap labour and lower production costs. Unfortunately, the byproduct of low-cost manufacturing was an increasingly complex supply chain that relies on third-party companies from across the globe.
The dangers of a globalised supply chain were realised in March 2021 when The Ever Given container ship managed to wedge itself in the Suez Canal. The Suez Canal is one of the most important shipping lanes in the world, and the blockage is said to have held up an estimated $9.6 billion of goods per day. This caused huge issues for businesses all across the globe, as for almost an entire week, raw materials weren’t getting where they needed to be.
By reshoring, businesses can avoid being caught up in such a disaster in future. Aside from Northern Ireland, the UK supply chain doesn’t require materials to be shipped by sea. This means less chance of products getting stuck in a faraway country, fewer products and materials being damaged in transit, and a far more straightforward way to track your items throughout the supply chain. Not only will this save you a headache, but it will also allow you to offer customers much shorter lead times with less chance of a delay that’s outside your control.
Fast fashion retailer Boohoo has set the standard for reshoring, having opened its own 23,000 sq ft factory in Leicester. While the new factory had a rocky start, the business turned its factory around and can now rely on the new factory for a large portion of its product manufacturing.
Reshoring also means businesses no longer have to deal with customs enforcement agencies and the complexities behind international logistics. In the wake of Brexit, UK businesses are desperate for simple, cost-effective ways to transport their products through the EU. Reshoring can help to do this by eliminating the red tape.
There are also environmental benefits of reshoring. Because products and materials are being transported over a much shorter distance, fossil fuel usage is far lower, helping to reduce companies’ carbon footprints. This is hugely important for businesses in the UK given the Government’s “Build Back Greener” Net Zero Strategy that looks to decarbonise all sectors of the UK economy by 2050.
The challenges of reshoring
Of course, reshoring brings back the original issue that caused businesses to offshore: money. There’s no denying that labour costs are much higher in the UK than, say, China or India. And no companies on the planet are happy to increase costs, which is why reshoring isn’t as common as one might hope.
Businesses may also find that production costs are higher, cancelling out the savings of reduced shipping. Raw materials may be more challenging to acquire, meaning companies can pay a premium to get hold of what they need.
Many processes will need to be automated to help offset higher labour costs. This creates further overhead when transferring your operations back to the UK, as you need to invest in new technology and machinery. However, these upfront costs will pay off over time as competitors struggle with global supply chain issues and Brexit.
There’s also a chance that skilled workers are harder to come by. The UK unemployment rate is currently in a downward trend (as of July 2022), and those looking for work are trying to secure better wages and benefits. This has made hiring in the manufacturing sector quite tricky over the past few years and could continue to be an issue in future.
Reshoring offers high risk with the potential for big successes
As much as we would like to say reshoring is poised to revolutionise the UK’s economy, it presents a considerable risk for businesses. High overhead is involved in such a move, but when it pays off, it pays off big. So, UK businesses should carefully weigh their options before diving straight into reshoring.
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